China's top coal mining group China Energy Investment Corporation, or CHN Energy, raised its monthly term contract prices of thermal coal for July delivery to a new high so far this year, market source disclosed.
The group pegged the July contract price at 570 yuan/t for 5,500 Kcal/kg NAR thermal coal it purchased from third parties, a 33 yuan/t rise compared with a month ago, and that for 5,000 Kcal/kg NAR thermal coal increased 32 yuan/t to 520 yuan/t, both on a FOB basis at northern transfer ports.
After the price adjustment, the contract prices are almost on par with current spot prices, only 6 yuan/t and 4 yuan/t below the corresponding Fenwei CCI indexes as of July 1.
Market participants surmised the group adjusted July prices because there would be supply tightness this month.
The coal giant reportedly has raised prices by 15-28 yuan/t for 4,500 Kcal/kg, 5,000 Kcal/kg and 5,500 Kcal/kg NAR thermal coal it bought from other sources at six rail stations in Inner Mongolia and Shanxi, effective from June 30 to July 8.
The move was regarded as the group pre-empted any insufficient purchases that could weigh on its long-term contract supply.
Also, CHN Energy's general selling department on July 1 filed a notice to its subsidiaries requiring them to suspend spot sales in July due to a lack of supply, confirming the market speculation about the supply tightness.
In fact, there has been a sign of insufficient supply. Qinhuangdao port saw the pickup of coal stock come to a halt after reaching a one-month high of 5.04 million tonnes on June 24, instead swinging in a narrow range between 4.8-4.9 million tonnes.
CHN Energy's price adjustment will reinforce the confidence to the spot market in July. Many expected the benchmark price would jump to 600 yuan/t FOB or even beyond.
Besides the supply tightness that possibly occurs, demand is also thought as a key driver to the market. Due a vast lack of import quotas, more utilities will have to switch to domestic supply from import coal. By far, apart from a few utilities in Jiangsu and Zhejiang provinces that still have some quotas, most in the southeast have used their quotas up.
(Writing by Alex Guo Editing by Harry Huo)
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