Coal sees a rebound, but gains capped

Since November, the price of coal at coastal regions has been falling continuously. Mainly affected by the high temperature, the increase of coal consumption in power plants was slow. In addition, with coal price on the high side, chemical enterprises were less willing to purchase.

On supply front, the production areas were affected by the prevention and control measures to combat the pandemic, and thus logistics were restricted. A large amount of excess coal led to the downward moves of mine-mouth coal prices. Some coal mines were even forced to reduce production due to shortage of storage space.

In mid-Nov, the restrictions on Datong-Qinhuangdao Railway from Shanxi Province to Hebei Province were lifted, and as a result, thermal coal at coastal regions piled up gradually. With anemic supply and demand growth, coastal coal price slipped.

Toward the end of November, the China Meteorological Administration issued an orange warning for a cold wave. After the cold wave, the minimum temperature in many regions of East and South China dropped sharply. It is expected that the coal consumption at the power plants will significantly increase, and the demand side is expected to improve. However, at present, coal stocks at thermal power plants is high, and restocking demand could be weak in the near term.

According to data released by the China National Bureau of Statistics, raw coal production has maintained rapid growth in 2022, with an average monthly growth rate of more than 12% from January to September, compared with a year-on-year growth rate of 1.2% in October. The average daily growth rate of raw coal production was more than 10% year-on-year, with a peak of 18.6% in July and an obvious decline to 3.6% in October. Imports rose 8.3% year-on-year in October.

With the pandemic impact winding down, Datong-Qinhuangdao Railway has recovered. Though operations of some coal mines are still impacted by the pandemic, the overall supply is expected to improve. With increasing heating demand in winter, coal supply from main production areas is expected to pick up.

In terms of policy, the National Energy Administration reiterated the focus on ensuring supply and stabilizing prices. With peak consumption in winter, the coal consumption at the power plant is expected to rise, driving up the demand. Meanwhile, supply is also anticipated to recover. Coal prices have rebounded slightly in recent days, but the rebound is expected to be capped by supply replenishment. With the government focusing on ensuring the supply, the volatility in coal price would reduce.