China's thermal coal demand poised to rise with improving epidemic situation Viewpoint,  Price,  Thermal Coal 2022-05-17 17:45:50

China's domestic thermal coal market is under upward pressure, buoyed by a potential increase of power demand amid easing Omicron control.

The nation's financial hub Shanghai has achieved zero new COVID-19 infection, the city authority announced on May 17. As of May 16, Chinese mainland reported 162 newly confirmed local cases and 887 asymptomatic infections, compared with a peak of 5,646 confirmed cases on April 28.

In April, China's economic activity was heavily hit by the epidemic. The manufacturing PMI fell by 7.24% year on year to 47.4, and the non-manufacturing PMI tumbled 23.68% to 41.9, both below the 50-mark line that separates expansion and contraction.

The overall economy will start to recover from May, experts said, citing the huge consumption potential and complete supply chain. The government will also take a slew of measures to stimulate the economy.

A promising economic recovery will bolster electricity consumption. This will prompt utilities to accelerate coal procurement to build up their not high enough inventories before the summer.

For almost a week, however, China's domestic thermal coal market has been range-bound with weak liquidity.

On May 17, prevailing offers for 5,500 Kcal/kg NAR thermal coal were mainly at 1,250-1,300 yuan/t FOB northern ports with VAT and the 5,000 Kcal/kg NAR was mainly offered at 1,130-1,150 yuan/t. The trading level for 5,000 Kcal/kg NAR thermal coal was heard standing at 1,120 yuan/t or so.

This came despite a rise in coal consumption at power plants and their stockpiles appear a trend of falling. Daily coal consumption at the six major coastal power groups averaged 716,271 tonnes over the week of May 10-16, up 4.04% from 688,471 tonnes a week earlier.

"The stoppage of the price rally is mainly due to the government's price control policy," said a Fujian-based trader. "The market would have been rising sharply without the policy."

A Guangdong-based utility on May 16 bought a domestic cargo of 4,500 Kcal/kg NAR thermal coal at 999 yuan/t CFR with VAT, netting back to 940-950 yuan/t FOB northern ports with VAT. The price was close to the government upper limit of 1,155 yuan/t basis 5,500 Kcal/kg NAR.

"The fundamentals no longer work in analyzing the current market," said a Beijing-based trader. "It looks like what it was in early October last year when the market made its final sprint.

However, there is a visible difference between them. In October last year, the government could easily cut down the price (which was almost halved compared with the peak) because of a batch of new production was put onto the market. But now, the increment has been diluted by growing demand and there is not much new production.

As for the contract supply, utility sources said the fulfillment was still curbed by rail bottleneck. And, strong demand from industrial factories bolstered prices at both mines and ports. It is still challenging to cool down the market through policies in the short period.

(Writing by Alex Guo  Editing by Tammy Yang)
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