Improving Fundamentals Lift China Thermal Sentiment
Fundamentals on China’s thermal coal market improved further on Monday, as heatwaves spread to many provinces, boosting air conditioning demand, while at the same time ongoing mine inspections threaten to squeeze coal supply.
Estimates suggest that the recent mine safety and environmental campaign has caused 36 mines with capacity of 96 mt/y to suspend operations at present, in addition to slowing activity at smaller mines whose output quotas start running out towards the end of the month.
Seaborne freight rates face upward pressure, meanwhile, as Iran’s parliament has threatened to blockade the Strait of Hormuz after the US bombed the country’s nuclear facilities last weekend, with tensions in the Middle East seen running high for many months.
Furthermore, higher-than-normal temperatures are forecast over the next 30 days for large numbers of provinces, including northern and southeastern regions, which will potentially reduce hydropower output while boosting air conditioning demand.
As a result, sentiment generally improved today, leading to more mine price rises, with a survey of 90 major mines showing 12 hikes by an average of RMB8/t ($1.11/t) today, with just one cut by RMB1/t ($0.14/t).
Forecasts also suggest limited likelihood of further price cuts either in mining regions or loading ports, as many mines are operating at break-even or even losing money, while traders at ports remain loss-making at current prices. Shaanxi Coal has estimated that roughly 33% of China’s coal mines are operating at a loss.
Despite this, a number of participants warned that weak overall industrial demand will limit any major price rally, suggesting that hikes of more than RMB20/t ($2.79/t) are unlikely for the current season.
Offers at Qinhuangdao (QHD) for 5,000 kc NAR and 4,500 kc NAR material rose RMB2/t ($0.28/t), to RMB539-549/t ($75.17-76.57/t) FOB and RMB475-485/t ($66.25-67.65/t) FOB respectively, but 5,500 kc NAR products remained steady at RMB611-621/t ($85.22-86.61/t) FOB.
Consumption at coastal generators hit 1.79 mt/d on 19 June, up 0.04 mt/d from a week earlier, and stocks of 34.80 mt or 19.4 days, but were still 3.47 mt lower on the year. Units owned by the six major coastal power groups used 794,300 t yesterday, down from 806,700 t the previous day, though well above 724,000 t on 2 June. Stocks of 13.93 mt were enough for 17.5 days, down from 19.7 days on 2 June.
Consumption in the eight coastal provinces still dipped 8% year on year, and levels at the six major power groups were 4% lower. Stocks at the nine major north China loading ports were 28.77 mt on Friday, up 0.04 mt from the previous day and up 1.47 mt on the year.
Freights for QHD to Guangzhou in 50,000-60,000 t vessels dipped RMB0.1/t ($0.01/t) to RMB40.20/t ($5.61/t) on Friday, and rates for QHD to Shanghai in 40,000-50,000 t vessels dropped RMB0.2/t ($0.03/t) to RMB26.20/t ($3.65/t). Ex-stock rates steadied at RMB700/t ($97.63/t) at Guangzhou port and RMB705/t ($98.33/t) at Ningbo, basis 5,500 kc NAR. Stocks at Guangzhou grew to 3.13 mt yesterday, from 3.11 mt the previous day.