Coal Market Outlook Dampens as Prices in China Drop to Lowest Levels in a Year

Earlier this week, the price of thermal coal in China fell to their lowest levels in a year. Traders and analysts believe that this is because production from mines in the country is recovering faster than the demand for thermal coal.

Rising inventories in China are limiting imports and, in turn, putting pressure on the global price of the fuel. Slow recovery in the consumption of coal in China, which is the biggest consumer of coal globally, also indicates a moderate rebound in growth and power consumption.

Analysts predict that the demand for coal in China will grow 2% in 2023 and increase appetite of imports, especially for high-quality coal from Australia. This comes after the country eased its ban on imports from the Western nation.

However, increasing stocks at utilities and ports point to more output from mines than the chemical, cement and steel industries can use. Data from the China Coal Transport and Distribution Association shows that coal stocks in eight ports in the north rose to 35.96 million tons this week. This level was last recorded in 2020 when industry activities were suspended because of the coronavirus pandemic. This has dampened market confidence in the near-term demand outlook. Reserves of major utility companies were also higher than they had been in the last four years, with the data showing that the use of coal at these power plants had also grown to last year’s levels.

In northern China, spot prices for thermal coal with 5500 kcal heating value dropped to $142.49 per ton this week, which is equivalent to 980 yuan. This level was last recorded in February 2022.

The global price of thermal coal also plunged, with 3800 kcal coal from Indonesia falling 17% to hit $67 per ton and 5500 kcal coal from Australia dropping by 10% to reach $118 per ton.

In a note, an analyst from Tianfeng Futures stated that while most miners had resumed coal production after the Lunar New Year holiday, downstream industries still had not reached previous demand levels. Coal traders and analysts also noted that the construction materials market was waiting for sustained economic stimuli from the Chinese government to prop up the property and infrastructure sectors.

One coal-purchasing manager at a state utility company revealed that while company officials had anticipated a strong rebound in demand for coal coupled with a rapid recovery in the economy following the Lunar New Year, the actual recovery path was much slower.

Coal extractors such as Peabody Energy Corporation (NYSE: BTU) are likely going to keep a close eye on the coal market in China because developments there could impact the worldwide market of the commodity.

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