SunSirs: Short-term Outlook for Chinese Coal Market Bearish: High Inventories and Weak Demand

Recent trends in the Chinese coal market reflect a strong bearish sentiment, driven by lackluster daily thermal coal consumption and a continued buildup of coal inventories across mid- and downstream sectors; consequently, traders are increasingly willing to lower prices to offload stock. As of July 2, the "CCTD Bohai Rim Thermal Coal Spot Reference Prices" for the 5500K, 5000K, and 4500K grades closed at 831, 739, and 642 RMB/ton, respectively—marking daily declines of 6, 7, and 6 RMB/ton.

What is the short-term outlook for coal supply and demand, and where are prices headed?

1. Coal supply from production regions may struggle to return to normal levels

In the short term, coal supply from production regions is unlikely to fully recover to normal levels. First, while coal mines in Shaanxi and Inner Mongolia have ample production quotas for the beginning of the month—suggesting an increase in supply compared to late June—other factors remain at play. Second, although "Safe Production Month" has concluded, relevant national authorities and local regulators are likely to maintain strict safety oversight; the resumption of operations at previously suspended mines in Shanxi may lag behind expectations, and active mines are likely to maintain a cautious approach to production.

2. Frequent rainfall in the south may dampen enthusiasm for power plant procurement

Since June, coastal thermal coal end-users have been actively restocking; however, frequent rainfall has kept daily consumption levels modest. Consequently, thermal coal inventories at CCTD's sampled coastal end-users have reached their highest levels in recent years, up 7.1% year-on-year. According to the Central Meteorological Observatory, frequent rainfall is expected to persist in the south during early July. A typhoon may make landfall in South China between July 3 and 5, bringing strong winds and heavy rain to the South China Sea and South China regions, with localized areas potentially facing torrential downpours. From July 6 to 7, heavy rain to torrential rain is forecast for western Jiangnan, eastern Jianghan, the Jianghuai region, and central-western South China, with localized areas experiencing extreme downpours. Given these conditions, daily consumption at coastal power plants is unlikely to rise in the short term; with inventories already high, power plants are expected to show limited enthusiasm for procurement. 3. Coal inventories at northern ports remain high

Recently, coal inventories across the nine major northern ports have fluctuated at high levels—hovering around 29 million tonnes—surpassing figures from the same period last year. With significant pressure to clear port stocks, traders are showing an increasingly strong willingness to sell. In the short term, as bearish market sentiment intensifies, coal mines and traders are likely to exercise greater caution regarding shipments to ports. The number of vessels anchored at Bohai Rim ports has dropped sharply compared to earlier periods, signaling weak downstream procurement demand; consequently, coal inventories at northern ports are expected to remain high.

4. New energy generation will increasingly displace thermal power

According to the National Bureau of Statistics, the combined output of wind and solar power from industrial enterprises above a designated size maintained positive year-on-year growth during the first five months of this year. Meanwhile, the domestic capacity to utilize new energy continues to improve; data from the National Energy Administration indicates a 3.9% year-on-year increase in green electricity trading volume during the same period. As the development and integration of new energy generation progress, the share of thermal power in the energy mix is ​​expected to decline steadily, potentially limiting the scope for growth in thermal coal demand.

In summary, given that coal inventories in the mid- and downstream sectors are already high, the support provided to the coal market by the slow recovery of upstream supply is gradually weakening. Demand-side dynamics will play a decisive role in shaping coal price trends. Furthermore, the displacement of thermal power by new energy generation is intensifying, and frequent rainfall in coastal regions in the short term is unlikely to boost power plants' procurement enthusiasm; thus, coal prices are expected to remain under downward pressure. Moving forward, close attention should be paid to weather changes in coastal regions, fluctuations in mid- and downstream coal inventories, and the resulting impact on coal prices.

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