Chinese traders engaged in spot thermal coal transactions were generally in a wait-and-see stance after the Qinhuangdao capped price at 750 yuan/t FOB for 5,500 Kcal/kg NAR coal traded at the port.
Market sources confirmed Qinhuangdao Port Group has decided to stop allowing 5,500 Kcal/kg NAR coal at above 750 yuan/t FOB to enter the port, the largest coal transfer hub in North China, effective February 5.
It is believed to be a harsh move taken by Chinese authorities to bring down coal prices that have rallied for long and secure supply for power producers that are in face of coal shortage this winter.
"Everybody is waiting and sounding out market conditions now," said a Tianjin-based trader. "Buyers remain keen on taking the undersupplied material regardless of the limit."
The spot coal market was still supply-strapped at Bohai-rim ports, he noted. "A trader in Caofeidian port offered 20,000 tonnes of 5,000 Kcal/kg NAR blend coal with 0.8% sulfur high at 700 yuan/t last Sunday. I also have a train of Inner Mongolian same-CV fuel offered at the same level."
A Qinhuangdao port-based trader who reported growing wait-and-see sentiment in coastal coal market said people who intended to buy previously would not take any coal now.
Regarding the price-regulating measure, the trader pointed out it's just difficult to quell jumping prices via the "visible" hand while cost has climbed quickly. "Coal prices are rising at production regions; mine-mouth price for 5,500 Kcal/kg NAR coal has climbed to 530 yuan/t."
"The spot coal market came to be muted following the price limit, and I didn't hear any low offer prices of 750 yuan/t FOB for 5,500 Kcal/kg NAR fuel," said a Fujian-based trader, adding 5,000 Kcal/kg NAR coal was still offered at 695-700 yuan/t FOB.
Yet a coal mine source said his firm had supplied 5,500 Kcal/kg NAR coal for utilities at 750 yuan/t FOB, inclusive of 17% VAT.
"Traders generally could accept the price, as it leaves some profit margins for them who purchased the material at relatively low prices," he pointed out. "It took only one week for prices to surge to 770 yuan/t from 750 yuan/t FOB, so I think their purchase cost should be low."
He noted his company would outsource coal at even lower prices, as further price-regulating moves are likely, and the financial cost and profit should also be factored in.
Barely anybody dared to offer 5,500 Kcal/kg NAR coal above 750 yuan/t FOB after the policy had come out, leading to few deals clinched and more in wait-and-see, said an Inner Mongolia-based trader.
"Major state-owned coal producers, however, seemed to have implemented the policy strictly in response to authorities' price control effort," he said, adding China National Coal Group sold the fuel to utilities at 750 yuan/t FOB.
Echoing this view, a Jiangsu-based trader said several large producers had lowered their prices while traders were generally sitting on the sidelines. Traders also turned tepid in buying the material at rail platforms given narrowed profit.
"It may be less likely for spot coal prices to edge up in the short run," said a second Inner Mongolia-based trader, citing downward price revisions by large coal firms and falling coal burns at power plants, though utilities may continue to restock before the Spring Festival.
A Hebei-based trader said offer prices for 5,500 Kcal/kg and 5,000 Kcal/kg NAR coals stayed at 775 yuan/t and 700 yuan/t FOB, and no deals were concluded following the price limit.
"Though no deals were settled at northern ports these days, some buyers will probably turn to Rugao and Yangtze River ports to take the fuel at high prices," said a Zhejiang-based trader, noting this may in turn underpin coal prices.
On February 6, the Fenwei CCI Thermal index showed domestic 5,000 Kcal/kg NAR coal slid 4 yuan/t from a day ago at 682 yuan/t FOB with VAT, which was down 4 yuan/t from the week-ago level.
(Writing by Tammy Yang Editing by Jessie Jia)
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