Month-long maintenance to China's coal-dedicated Daqin railway, which ended on May 28, two days ahead of schedule, has exerted limited impact on China's coastal thermal coal market, due to still weak demand from well-stocked power plants.
Yet the maintenance to Daqin, which accounts for nearly 20% of China's rail coal transport, coupled with mine halts or output cuts for the "Two Sessions" (May 22-28), still affected rail coal inflows into northern ports (mainly Qinhuangdao and Jingtang ports) in May.
While, steady recovery of industrial activity at southern China boosted coal burns at utilities, resulting in a mismatch between supply and demand and a structural shortage (lack of premium low-sulfur supplies) in coal available at northern ports.
Data from sxcoal.com showed coal arrivals to Qinhuangdao port averaged 0.4 million tonnes each day over May 1-28, 22% higher than the daily average in April, while outbound shipment climbed 30% from April to 0.47 million tonnes.
Accordingly, coal stocks at the port fell to 3.89 million tonnes on May 28, a reduction of 1.9 million tonnes from the level on April 30. Coal stocks at SDIC Jingtang port also dropped to 1.38 million tonnes from 2.41 million tonnes at the end of April.
Yet, it was mainly the bullishness of sentiment that caused a rapid rebound of spot thermal coal prices from the multi-year low in mid-May, before stabilizing this week. Fenwei CCI 5500 index, gauging 5,500 Kcal/kg NAR thermal coal traded at northern ports, has been stable at 548 yuan/t FOB with VAT since May 25, after rising 79 yuan/t from recent low of 469 yuan/t on May 11.
Increase in CCI 5000 index, which assesses domestic 5,000 Kcal/kg NAR coal at northern ports, has also slowed since May 25, following a 85 yuan/t jump from recent low 403 yuan/t on May 9, standing at 489 yuan/t FOB on May 28.
There's high likelihood for spot coal prices to weaken in the near future, as port stocks gradually recover to normal levels along with the resumption of output at coal mines after the "Two Sessions" and increased rail shipment by Daqin line.
Affected by COVID-19 epidemic that paralyzed industrial activity in China, thermal coal demand from end users, mainly power plants, had been weak since the Spring Festival in late January, driving down prices at Bohai-rim ports to the lowest level since August 2016 when China's supply-side reform was lifting prices of the fuel from another record low seen in mid-November 2015.
Sluggish demand forced some producers to pare down on production and shipment to northern ports. Coal shipment by Daqin line averaged 980,000 tonnes or so each day in April, even lower than a daily average of 1.09 million tonnes during the routine spring maintenance last year, according to data from sxcoal.com.
Over January-April, a total 117.05 million tonnes of coal was delivered by Daqin railway, a slump of 17.8% year on year.
Normally, averagely 1.25 million tonnes of coal from Shanxi, Shaanxi and West Inner Mongolia is transported via Daqin rail line each day, of which around 1-1.1 million tonnes goes to Bohai-rim ports.
(Writing by Jessie Jia Editing by Harry Huo)
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