Chinese Coal Demand Continues to Strengthen But Will it Last?

Dec. 3, 2012 - PRLog -- “In early October the phones started ringing again. I was sceptical at first but it’s got real traction,” said an Asian-based representative of a US exporter which mainly exports high volatile second tier metallurgical coal products.

Price levels appear to have improved to around $160/t FOB for imports of spot premium quality coking coal and to around $117 for second-tier PCI product.

As usual when trying to understand the moving feast that is China, several factors are at play. China Coal Report spoke to a number of industry participants to get their take on what’s shaping the market.

The looming Chinese winter is clearly partially responsible for driving some of the buying activity as one source remarked.

“The Chinese have been building up stock ahead of the severe winter that’s been forecast. If the winter is severe it then impacts on the transport infrastructure moving domestic coal from west to east. This push factor means the Chinese have to import more coal in general,” he said.

The unfolding political situation, following the leadership transition is also having far-reaching effects. One immediate impact was the shut down for 60 days of some coking coal mines. Sources believe this was done to reduce accidents so that the leadership transition would not be dampened by bad news of mine deaths. This artificial supply restriction is believed to have added to some tightness in China.

A leading Canadian producer said the current price of seaborne coking coal is also attractive to the Chinese compared with domestic coal.

In recent days Energy Publishing learned that BHP Billiton had tabled coking coal prices for the month of December in India at around $160/t FOB for Peak Downs, $155 for Goonyella and for Gregory $135.

Sources say this relatively stronger price (from lows of $145 or so) has been underpinned by Chinese demand.

The current quarterly price is $170/t FOB with several industry observers predicting rollover for the Jan-March 2013 quarter.

As reported in China Coal Report previously, all industry participants we speak to have doubts about the sustainability of the current Chinese rally.

Typically, the Chinese restock ahead of Chinese New Year, starting February 10 next year and sources predict a slowdown once this phase of restocking flows through.

On the thermal coal front overall Chinese power generation rose in October but thermal generation was down.

According to the National Bureau of Statistics of China, electricity generation in October totaled 389.8 billion KWh, up 3.8% y-o-y. Thermal power accounted for 292.6 billion KWh, down 0.4% y-o-y. Hydro power made a strong contribution, up 27% to 74.1 billion KWh.

Meanwhile, coal stockpiles at Chinese power plants remain high at 27 days of supply meaning power plants are well positioned for peak winter demand, according to reports.

Current buying activity from Chinese buyers is believed to be about taking advantage of weak international pricing, with a focus on lower CV coals.

In the week to date some spot buying of Indonesian coal by Chinese buyers has been reported. Sources said a 3800 NAR (4200 GAR) deal was closed at $40.20/t and a 4700 NAR at $55.50/t FOB respectively in 50kt on a G&G basis while for Richards Bay product, a very prompt RB3 cape was bid at $84.50 CFR Lianyungang.

Meanwhile, according to the General Administration of Customs and Bloomberg, total Chinese imports for October finally rose for the first time in four months, hitting 21.4Mt. Imports were up 15% m-o-m and 11.6% y-o-y.

More information can be found in the China Coal Report which presents weekly updates on both the producer and consumer sides of the Chinese coal market.  With information on trade, transport and policy updates, the China Coal Report provides comprehensive coverage for anyone dealing with the Chinese coal market.

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