China's thermal coal spot market posted a noticeable pickup at northern ports in recent days, supported mainly by tight supply from production areas amid inadequate rail wagons.
After keeping steady around 670 yuan/t for eight days in mid-November, domestic 5,500 Kcal/kg NAR coal has rebounded since November 23, hitting 683 yuan/t FOB on November 29, up 12 yuan/t or 1.79% from a week ago, showed the Fenwei CCI Thermal index.
For the 5,000 Kcal/kg NAR coal, the CCI index was growing more sharply than the CCI 5500 index. From 582 yuan/t on November 22, the trend kept going up almost without any zigzags. On November 29, it came at 605 yuan/t, very close to the monthly high of 606 yuan/t on November 1.
A Hebei-based market player attributed the increase of the 5,000 Kcal/kg NAR coal to tight rail transport. "Railway freight has been on the verge of full load operation since diesel trucks were banned," he said. "Wagon application and approval are not so available now."
Although the prices are still below high levels in October, they still took many traders by surprise.
A trader from Qinhuangdao port described the pickup as a "shocking squirt". "I think the market may head down again following this short boom," he said.
Coal burns at thermal plants increased recently as cold wind blanketing most northern regions and hydropower failed to fill the demand gap due to low water levels.
Daily coal consumption averaged 645,400 tonnes at the six major coastal power enterprises over November 19-25, 40,300 tonnes or 6.66% more than the average a week ago.
On November 30, daily coal consumption totaled 646,000 tonnes at the six major coastal power enterprises, up 24.23% from the beginning of the month.
However, coal prices were still on the downtrend at major production areas. In the past week, the three large coal provinces – Shanxi, Shaanxi and Inner Mongolia – posted price declines of various extents.
Yulin, one of Shaanxi's major coal cities, saw a large price slump on weak demand. Some miners lowered prices in northern Shanxi while most remained the same. Prices continued in a downside at Ordos, Inner Mongolia.
Mine-mouth prices are likely to benefit from the uptrend at northern ports soon. Miners in Ordos reported more coal trucks and fewer stocks in recent days.
In the short run, spot coal prices are expected to keep strength at northern ports. But, the upward strength may weaken gradually, given a lack of firm demand from utilities that are relying mainly on term contracts.
Analyst with Everbright Securities said it was mainly increasing residential power demand for heating purpose (like air conditioners and electric radiators) that drove up coastal coal prices.
Increased coal and power usage in southern regions caused by tight supply from the north also helped prices bounce back more steeply than expected, the analyst said in a note.
BOCI Securities pointed out in its latest research that the month with worst supply-demand strength is passing away. Utilities' daily consumption, according to data of the past five years, is usually 10% higher on average in December than in November.
"Demand growth is still expected to surpass supply growth in December, even as sufficient supply is guaranteed by the authorities," the research said.
In the just concluded coal trade fair, term contracts totaling over 130 million tonnes were signed between China's large coal and power enterprises. Sources said large coal miners' long-term contracts sales will rise from 2017's 80% to 90% of their total sales in 2018.
"With stricter supervision and higher contract fulfillment, power plants will be more reliant on long-term contracts," said Kaiyuan Securities. "Coal prices accordingly will move closer to a level acceptable to both parties."
(Writing by Alex Guo Editing by Harry Huo)
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