Fenwei: China thermal coal prices to go upward, yet downward risk remains

sxcoal.com Viewpoint,  Price,  Ports,  Thermal Coal 2018-05-09 17:57:00

China's thermal coal prices are expected to keep going up in the short term after experiencing a small drop-back in late April, according to the latest Fenwei Coal Weekly Update (Apr 29-May 5) by leading coal consultant Fenwei Energy Information Services.


By May 4, Fenwei CCI spot index for the 5,500 Kcal/kg NAR thermal coal increased 8 yuan/t within a week to 602 yuan/t, slower than 17 yuan/t of growth a week ago.


During the week, thermal coal prices remained upbeat but slowed down from the previous two weeks at production areas, transfer ports and consumption areas.


Production areas Prices rally and bullish sentiment at ports had spread to major production regions. Some miners raised their prices when seeing more trucks waiting outside for loading, but more had no moves yet.


According to Fenwei's survey, prices of washed coal edged up in northern Shanxi province recently. Local coal miners reported good sales and significant decrease in stocks, but coal prices were still flat or on the decline in the central and southern parts of the province. 


By May 4, Fenwei assessment showed Datong 5,500 Kcal/kg NAR thermal coal with 0.8% sulfur edged up 10 yuan/t from a week ago to 410 yuan/t, on mine-mouth basis with VAT, while that of 4,800 Kcal/kg NAR thermal coal with 1.0% sulfur produced in Shuozhou was 370 yuan/t, free-on-rail with VAT, up 10 yuan/t on the week.


Prices in Luliang, Linfen, Jinzhong, Changzhi and Jincheng, all located in central and southern Shanxi, dropped 30-40 yuan/t for various brands on the same day, data showed.


Sales in Ordos, Inner Mongolia improved with more trucks waiting at mines for loading. Prices of some local brands increased but most remained unchanged.


In Yulin, Shaanxi province, coal prices were moving up on the back of good sales. By May 7, the 5,800 Kcal/kg NAR thermal coal in Yulin was assessed at 395 yuan/t, mine-mouth basis with VAT, 8 yuan/t more than a week ago.


Ports Coal stocks continued falling at northern ports. By May 4, the four major northern ports – Qinhuangdao, Jingtang, SDIC Caofeidian and Huanghua – saw their combined stockpiles total 14.78 million tonnes, easing from 15.45 million tonnes a week ago.


Stocks at Guangzhou port were up 0.21 million to 2.35million tonnes on the same day.


The five major ports along the Yangtze River, more close to the southern and eastern consuming regions, kept inching up by 20,000 tonnes to 3.83 million tonnes.


More shipments arrived at northern ports after Daqin railway resumed from maintenance, but coal stocks at northern ports decreased more sharply than a week ago (0.67 million tonnes versus 0.05 million tonnes). However, stocks in Guangdzhou ports and ports along the Yangtze River keeping going up, indicating stocks were accelerating accumulation at ports, which may further weigh on the market.


Consumption areas Coal consumption was seen edge down during the surveyed session. By May 4, daily consumption of the six major coastal utilities totaled 664,000 tonnes, down 29,000 tonnes from a week ago, while their combined stocks were range-bound at 13.1-13.3 million tonnes.


The inventory fluctuation may indicate more from consumption bumpy than restocking, which many also prove coastal utilities were yet to start large purchase.


Therefore, the current price rally looks more like traders' speculative activities rather than the real changes from supply-demand fundamentals.


Looking abroad, foreign coal prices have been on the rise recently, partly due to miners and traders' upholding of prices in the wake of the upcoming Ramadan month in Indonesia that may reduce production and supply and the increase purchase from China and South Africa that drove up Australian coal prices.


By May 4, CCI Import 5500 index was assessed at $83.0/t, up $1.4 week on week; that of import 4,700 Kcal/kg NAR coal cargoes dipped $0.2/t to $69.8/t; CCI Import 3800, $50.8/t, up $0.2/t, all on FOB basis.


By May 3, NEWC thermal coal price reached $101/t, up $6/t week on week.


Price spread at Guangzhou port between Chinese domestic price at Qinhuangdao port and that at Australian Newcastle port for the 5,500 Kcal/kg NAR thermal coal was 45 yuan/t on May 4, down 2 yuan/t from a week ago.


In a view of inventory, it remained high at the four northern ports, the five ports along the Yangtze River and the six coastal power plants, compared with that in the same period in 2015-17, although it has declined from the previous high in late March-early April.


This may postpone utilities' large restocking and resultantly prevent coal prices from rising too fast.


However, it raised concerns that China's domestic output in the first quarter showed it fell down by 0.6% from a year ago.


In addition, China's Ministry of Natural Resources said in early May that the provision of "examination and approval of delimitated coalfields shall stop within three years from 2016",  issued by then- Ministry of Land and Resources, was suspended, which some insiders read as a proof to the current speculation of supply shortage.


From the above analysis, we can see that the main factor driving up the price is the expectation of large increase in demand and shortage of supply in the peak season.


Nevertheless, the government's determination to control prices is undiminished. If prices continue to rise sharply in the off-season, the government will order the railway department to strengthen transport and coal mines to enhance production


There will be a rapid increase in arrivals at ports by then. Even if the demand exceeds expected, the overstocked cargoes in the slack season will become a restraint on price increase.


To know more about the Fenwei Coal Weekly Update, please contact us directly via inquiry@fwenergy.com

(Writing by Alex Guo  Editing by Harry Huo)
For any questions, please contact us by inqury@fwenergy.com or +86-351-7219322.

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