China's thermal coal market has experienced significant downturns since entering the fourth quarter, with a supply surplus pushing prices down to intra-year lows even in the traditional peak winter demand months.

Sluggish trading activities continuously pressured thermal coal prices at northern ports, and then reverberated through production areas, import markets, and even logistics.

Coal price trends

Production areas Affected by the weak portside market and slow sales in production areas, the mine-mouth thermal coal prices have seen a rare downward trend this year, with a tendency to further accelerate.

On December 19, the CCI index for Ordos 5,500 Kcal/kg NAR thermal coal at 573 yuan/t mine-mouth with VAT, down 6 yuan/t day on day, bringing the cumulative decline to 86 yuan/t since November, while that for Datong 5,500 Kcal/kg NAR declined 5 yuan/t to 635 yuan/t, with cumulative decline reaching 82 yuan/t during the same period. Yulin 5,800 kcal/kg NAR coal was at 644 yuan/t, 1 yuan/t lower than the previous day, and marking the cumulative decline of 77 yuan/t.

Northern ports A lack of intensity and strength of cold waves failed to significantly pull up coal consumption at power plants, leaving them inactive in restocking for spot supplies amid high inventories. This, paired with the mindset of "waiting when prices are on the decline," resulted in sluggish transactions at ports, which continuously dragged prices downward.

On December 19, the CCI index for 5,500 Kcal/kg NAR thermal coal was assessed by Sxcoal at 780 yuan/t and 5,000 Kcal/kg NAR grade at 679 yuan/t with VAT, both down 5 yuan/t day on day. The index for 4,500 Kcal/kg NAR grade also fell 6 yuan/t to 576 yuan/t. Their cumulative declines reached 90 yuan/t, 93 yuan/t and 109 yuan/t respectively since October.

Import market Bidding prices to Chinese utility tenders for seaborne thermal coal kept dipping affected by weak domestic market, although foreign miners strived to maintain offer prices firm.

although the quotations of foreign ore have been relatively strong, the bidding price of imported coal continues to weaken as the domestic coal prices continue to fall and terminal demand is weak.

On December 19, the CCI index for imported 5,500 Kcal/kg NAR thermal coal was assessed by Sxcoal at $95/t, flat day on day, and the cumulative decline was $10.5/t since November. Imported 4,700 Kcal/kg NAR grade at $80/t with VAT, flat the previous day, and this round of decline totaled $4.5/t. The index for imported 3,800 Kcal/kg NAR grade also maintain $58/t, and the cumulative decline starting from November reached $4.1/t.

Inquiries for domestic spot coal were scarce in southern China amid high influx of imported coal, coupled with moderate coal burns at power plants. Prices, therefore, continued to follow the downward trend.

On December 19, the CCI index for 5,500 Kcal/kg NAR thermal coal traded at Guangzhou port was assessed by Sxcoal at 870 yuan/t and 5,000 Kcal/kg NAR grade at 770 yuan/t FOB with VAT, both down 35 yuan/t since November. On December 13, the CCI index for 5,500 Kcal/kg NAR thermal coal traded at Yangtze River Estuary was assessed by Sxcoal at 850 yuan/t and 5,000 Kcal/kg NAR grade at 750 yuan/t FOB with VAT, down 65 yuan/t and 70 yuan/t respectively from September 20.

Freight rates Sluggish downstream demand and resulting restrained transportation demand led to low transport capacity utilization and weakened freight rates.

On December 19, China Coastal Coal Freight Composite index was 699.55 points, down 132.9 points from the previous week and 187.01 points from the beginning of the month.

Trucking fees also weakened. Sxcoal assessed the Ordos-Huanghua port freight rate at 220 yuan/t on December 19, down 5 yuan/t from the beginning of this month and down 10 yuan/t from the beginning of November.

Coal inventory

High coal stocks held by the entire circulation link and downstream power plants significantly weighed on prices.

Most coal miners have seen limited improvement in sales after price cuts, leaving inventory accumulated. Sxcoal's weekly tracking data showed the total thermal coal inventory at the surveyed mines during December 12-18 was 3.47 million tonnes, an increase of 119,000 tonnes from the previous period.

Northern ports maintained a destocking trend, yet the overall inventories still hovered at high levels. On December 19, coal stocks at Bohai-rim ports stood at 27.54 million tonnes, dropping mildly from 28.15 million tonnes in the previous week.

On the same day, ports along the Yangtze River had a total coal inventory of 5.39 million tonnes. Inventories had been accumulating since mid-September, with an increase of 1.01 million tonnes. Despite the recent destocking, the overall stocks remained high.

The inventory at Guangzhou port was 2.46 million tonnes on December 19, a decrease of 387,000 tonnes from the beginning of the month, but still at a relatively high level.

Power plants were also highly-stocked, though the recent cold front pulled up coal burns and dragged down inventories. On December 19, power plants owned by six major coastal utilities had a coal inventory of 13.98 million tonnes, a decrease of 375,000 tonnes from the beginning of the month, but still 839,000 tonnes higher than the same period last year.

Summary

Demand is less likely to significantly rebound in the near term given the limited intensity of cold air and weak support in the industrial sector. This, coupled with high inventories, would continue weigh on thermal coal prices, tentatively with no bottom in sight.

However, some factors warrant attention, including the resistance from sellers against further price cuts, a lack of selling margins as indicative buying prices approach cost levels, and destocking progress.