context: Coal prices have been rising since March, traditionally a low demand period. While the call for residential heating fell, power consumption by industries is recovering strongly, driving up coal use. Having restricted coal imports from Australia, authorities will look to expand domestic coal production to alleviate tight supply.
Despite total coal demand falling in spring, NDRC (National Development and Reform Commission) is requiring coal producers to maintain output equal to that of the peak season in winter, in the face of shrinking inventories and soaring prices.
At a meeting convened by NDRC on 7 Apr 2020, electric power SOEs noted that
- coal prices surpassed C¥760 per tonne during Q1 2021; an increase of more than 30 percent y-o-y
- current inventories are low, and daily consumption is high
- at end March, plants had less than seven days worth of coal inventory
- there is an urgent need to prepare coal inventories for summer during April and May
They suggested stabilising coal import quotas.
At the meeting NDRC issued instructions to
- increase coal production and supply
- lift coal production to peak winter season levels
- set production targets for coal mines
- stabilise coal prices
- steady coal imports to serve the domestic economy
- better organise coal transport, especially during the Daqin railway maintenance period
- increase Qinhuangdao port’s reserves by at least 5 million tonnes
It is unusual for NDRC to host such meetings in the low demand season, an industry insider notes.
Thermal coal prices at port have risen to C¥735 per tonne, higher than last year’s Q1 average of C¥719 per tonne, according to research by Essence Securities.
The core reason behind the market’s recent volatility is there continues to be a mismatch between coal supply and consumption at power plants, which means that although plants’ daily consumption has decreased since winter, they are unable to increase inventories, according to a coal industry insider. High output from industries and businesses have driven up demand for power and coal.
Although overall coal consumption will fall in April, prices are likely to remain relatively high in the short term, according to a report by Yimei Research Institute, and
- demand for coal-fired power will continue to be strong, as hydropower output might be lower than the levels last year
- power plants need to grow inventories
China Electricity Council, however, expects coal-fired power consumption to drop, as the heating season ends and output from hydro and renewables is rising. Domestic coal production might also improve.