Thermal coal prices are rising strongly as the overcapacity is continuing.
Over the past week, domestic thermal coal prices continued to rise. Qinhuangdao 5500 big card thermal coal prices rose 5.9 percent to 450 yuan tons.
After rising to its highest level in more than 15 months, China's thermal coal prices are expected to rise further as reserves of electricity at Qinhuangdao Port have fallen to their lowest level in at least six years, Bloomberg said. The average number of days available to the six major power plants has fallen sharply by 3.2 to 14.8 days, the lowest level in nearly seven years.
Domestic coal production is also falling. In the first half of this year, domestic raw coal production fell 9.7 percent to 1.63 billion tons.
In sharp contrast to the sharp rise in coal prices, the serious surplus coal industry has slow progress in decapacitation. Xinhua recently learned from the national coal industry to resolve excess capacity and relief development field experience exchange, the first half of this year, 17 regions and relevant central enterprises to withdraw a total capacity of 72.27 million tons, but only to meet the annual target of 250 million tons of 29 percent.
Hunan and Jiangsu have completed 82.9% and 78.2% of the annual coal decapacitation targets respectively, and Beijing, Shaanxi and Xinjiang have also completed more than 50%, but there are still 9 regions that have not substantially started related work, and the completion of the full-year task is under great pressure.
The sharp rebound in coal prices is in exactly the opposite of previous market expectations. Not just in China, global coal prices have rebounded in the face of an unexpected rebound in Chinese import demand, with prices rising between 30 and 60 per cent this year. Australian spot coal and European coal futures have returned above $60 a tonne, the highest level since the first half of last year.
The rebound is a far cry from the slump in the international coal market in previous years, when coal was the first species to fall in price collapses since the end of a decade of commodity booms.
"No one expected us to experience such a price spike," Reuters quoted a senior trader as saying.
Why is the price of coal soaring?
The unexpected surge in coal prices is reminiscent of the boom in steel at the beginning of the year, but unlike the latter, which is widely suspected to be a big speculative factor, this surge in coal prices is more likely to be explained by tight supply and strong demand.
In a research report released on Monday, Shen Wan Hong Yuan analysts Zhou Tai and Liu Xiaoning attributed the rise in thermal coal prices to seasonal demand force: the current industrial chain coking coal stocks are very low, production deficiency is sharp, and steel profits improve to provide space for coking coal prices.
Recently, with the summer hot weather continued, the southern region appeared high temperature weather, coupled with the expected rise in coal prices, power plant procurement enthusiasm increased significantly, coal demand growth is obvious, anchorage ships increased, transfer, transfer volume significantly increased, port inventory continued to decline.
"Future Daily" quoted Baocheng Futures comprehensive analysis of a variety of factors: production restrictions, port coal stocks are still falling, the country's wide-ranging high temperature weather makes downstream demand strong, resulting in the Bohai port thermal coal stocks continue to decline, far below the level of the same period last year.
How long will the sharp rebound last?
"Coal prices have soared in recent weeks as China pushes hard to defuse excess capacity, which should support current prices," ANZ said on Friday.
Bloomberg also quoted David Fang, director of the China Coal Distribution Association, as saying that domestic production cuts were larger than expected, leading to tight supply. Coal prices are likely to continue to rise during peak summer power consumption.
However, some analysts warn that, like the crude oil market, the current surge in coal prices will be short-lived and prices will soon begin to fall.
Georgi Slavov, an analyst at commodities broker Marex Spectron, believes macroeconomic conditions have deteriorated and he is shorting the price of thermal coal.
