China's portside thermal coal prices have been declining for nearly three months since early October, nearing last year's lows, with the weekly decline rate increasing from 3 yuan/t to over 20 yuan/t in the past two weeks.

On December 24, the CCI index for 5,500 Kcal/kg NAR thermal coal traded at Qinhuangdao port was assessed by Sxcoal at 767 yuan/t and 5,000 Kcal/kg NAR grade at 666 yuan/t FOB with VAT, both down 3 yuan/t day on day and falling over 100 yuan/t compared with early October.

The ongoing drop has steadily eroded market confidence, leading participants to take a more bearish stance on future trends. With no upward drivers in sight, some traders expect further declines and are more inclined to sell, contributing to greater price reductions.

However, as prices continue to touch new lows, some participants are betting on narrowing declines. The persistent decline has driven many coal grades' prices down to long-term contract levels, with some even dropping below those levels. This has dampened downstream demand for long-term contracts, Sxcoal learned.

"Some power plants are taking a wait-and-see approach in signing long-term contracts after spot prices turn out to be more economically viable for certain supplies," said one Shanxi-based miner source.

If this trend continues, it may reduce long-term coal contract volumes and threaten power supply stability during peak periods, contradicting the government's energy security goals, said one trader in northern China.

Some participants believed that government intervention is likely if spot coal prices fall significantly below contract prices.

Additionally, supply is expected to reduce approaching the end of the year. Some miners have begun adjusting production based on sales to reduce inventory accumulation in response to weak market conditions and sluggish demand. More miners will complete their annual targets and shift to scaling back on production, and there might be large-scale shutdowns for small mines leading up to the Lunar New Year holiday.

Some miners also saw potential support from safety inspections, which typically tighten at the end of a year and could limit production.

The sharp decline in domestic thermal coal prices has diminished utilities' interest in seaborne imported coal, as the price advantages have decreased or vanished, leading to a potential shift towards cheaper domestic supplies.

There is room for improvement. Though temperatures have been warmer than in recent years this winter, seasonal trends suggest that coal consumption will increase each month until peaking in late January to early February.

Furthermore, overall consumer activity is likely to rebound noticeably, as historical data suggests that late December to early January typically represents the peak period for coal consumption in a year.

A few bargain hunters may consider entering the market once prices reach new lows, potentially providing floor support to prices and sentiment.

"A growing number of coal miners may suspend offering when prices trend lower. It has been challenging for buyers to secure supply of 5,000 Kcal/kg NAR coal at below 660 yuan/t," said a second Shanxi-based trader source.

The source just sold a cargo of Shanxi 5,000 Kcal/kg NAR coal with 0.6% sulfur at 685 yuan/t, FOB northern ports.

"I expect some short-covering demand to appear later this week or next, helping stabilize sentiment and prevent prices from fast falls," said a Hebei-based trader source.