Physical coal prices in China surge on nationwide shortage

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Offers for physical cargoes of thermal coal in China skyrocketed this week after reports of local outages and supply disruptions. 

Selling indications for so-called 5,500 NAR coal were pegged at above 2,000 yuan ($310) a tonne on Monday, according to traders who asked not to be identified as they’re not authorized to speak publicly. That compares with 1,600 to 1,700 yuan a tonne before the nation’s Golden Week holiday that ended last Thursday, they said.

The physical coal market in China is seeing higher prices than the nation’s futures market, where the most active contract on the Zhengzhou Commodities Exchange surged to a record for a second day. A sharp increase in power demand coupled with supply curbs stemming from safety, environmental and carbon-neutrality goals have contributed to the strong Chinese coal market, according to Yu Zhai, managing consultant at Wood Mackenzie Ltd. 

Chinese power generation increased 11% in the first eight months of the year, outpacing the increase in coal supply, the Beijing-based Zhai said. The price of 5,500 NAR coal at Qinhuangdao port was above 1,000 yuan a ton in January, in the peak winter season, before dipping to 570 yuan in early March, he added. 

Some key coal mining regions have been hit by flooding in recent weeks, complicating efforts to boost supply. However, most mines in the northern province of Shanxi have resumed operations this week, according to state broadcaster CCTV, citing a local government briefing.

Still, WoodMac’s Zhai expects 5,500 NAR coal in China to stay “strong” in the fourth quarter, with prices ranging above 1500 yuan per ton with room for upside in the event of a colder-than-normal winter. Market observers will be closely watching out for the 150 to 200 million tons per annum of new production capacity that’s been approved by the Chinese government, and how and when these supplies will enter the domestic market, he said. 

Beijing is urging domestic mines to ramp up production even as it tries to strike a balance between energy security and its carbon neutral goals. Higher prices for everything from coal to natural gas and fuels are also adding to inflation concerns, even as the country clamps down on speculative trading activities in the commodities space.

(By Serene Cheong, Javier Blas and Alfred Cang)

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