China's thermal coal prices are likely to drop back late this month, after rising further from current levels, as more import coal arrives following the government's temporary lift of restrictions.
Prices of spot thermal coal traded at China's northern ports have been on an upward track since mid-November, as heating demand increased as the country embraces chilly weather, while supply was partly constrained by a lack of rail wagons.
On January 4, Fenwei CCI Spot index for 5,500 Kcal/kg NAR thermal coal traded at Qinhuangdao port was assessed at 715 yuan/t, standing above 700 yuan/t for more than two consecutive weeks.
Many coal mines in northern regions that had completed annual production targets slowed or halted production at the end of 2017, as they try to erase safety risks and take the time to collect payment and repair facilities in preparation for the coming year.
Market insiders noted these mines may maintain low production before the Chinese Lunar New Year falling in mid-February this year.
To expedite coal supply and stabilize prices, Chinese authorities have eased restrictions on coal imports at major ports by shortening the time it has taken to issue a quality inspection report for foreign coal cargoes and have cut random checks since late December, sources said.
Traders said it took as many as 40 days to clear customs compared with one to two weeks previously.
Huatai Futures reported the curb lift will last until February 15, and only for coal imports used for power generation purpose.
Besides coal imports are set to increase in the market, domestic miners were also ordered to boost production at advanced mines.
Daqin rail, the leading coal-dedicated railway in the country, will put a batch of newly-bought wagons into operation and build new branch lines to mining areas, sources said, without mentioning the exact time. In addition, the railway department will strengthen cooperation with Bohai rim ports and prioritize coal for utilities in urgent need.
Heavy snow falls, however, in most parts of the country, would hinder coal transport to a greater extent, while further boosting demand for the fossil fuel.
For demand end, combined coal consumption in China's six major coastal power enterprises amounted to 685,000 tonnes on January 4, sinking 80,000 tonnes from the last day of 2017.
Insiders attributed the slump to three-day public holiday for the New Year's Day. "It will go back to December's level soon and stay high in a short term until power use goes down again," one insider said.
Coal stocks of the six power enterprises also dropped since the New Year's Day, but insiders said it was nothing but normal fluctuation.
Historically, the six utilities' coal consumption registered a significant slump in January over 2013-17, as factories and plants slash or halt operating before or during the Chinese New Year.
Coal burns would slump from late January or at latest early February in tandem with a slump in power consumption from industrial sectors as the country celebrates its grandest festival.
(Writing by Alex Guo Editing by Harry Huo)
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