SunSirs: Peak Season Expectations Delayed and Weakness Across the Supply Chain; China Thermal Coal Prices Fell Across the Board Last Week

I. Overview of Last Week's Market

Last week, the thermal coal market exhibited uncharacteristic weakness during the peak season; prices at ports, production sites, and for imported coal all declined, with price drops spreading throughout the entire supply chain. The anticipated surge in demand for the summer peak season failed to materialize; persistent "Meiyu" (plum rain) and widespread rainfall in the south kept temperatures down, while maximum hydropower generation significantly displaced thermal power output. Compounding these factors were high inventory levels at Bohai Rim ports and power plants, alongside an influx of low-priced imported coal diverting orders. Under the combined impact of these bearish factors, market trading was sluggish; even with price concessions from traders and mines, transaction volumes remained low, and market pessimism continued to spread. There has been no fundamental improvement in the short-term supply-demand balance, and downward pressure on coal prices persists; a market turnaround awaits the arrival of high-temperature weather following the end of the rainy season in the Yangtze River Delta on July 8.

II. Market Data and Operational Status

1. Bohai Rim Ports: High Inventory Pressure, Rapid Price Decline, and Stagnant Trading

Weakness was most pronounced at the ports last week. Total inventory at the three major northern ports reached 27.86 million tonnes—a record high for this time of year—with inventory backlogs and slow outflow becoming the primary factors suppressing coal prices. Regarding pricing, the CCI thermal coal indices were lowered across the board on July 3: the 5,500 kcal index fell by 7 yuan to 821 yuan/tonne; the 5,000 kcal index fell by 7 yuan to 729 yuan/tonne; and the 4,500 kcal index fell by 7 yuan to 629 yuan/tonne. Notably, the FOB price for 5,500 kcal coal at Qinhuangdao Port dropped to 809 yuan/tonne, a cumulative weekly decline of 26 yuan—a significant drop. Market dynamics have reversed; ports like Caofeidian shifted from a "ships waiting for cargo" scenario to "cargo waiting for ships," reflecting extremely low downstream purchasing interest. Traders faced significant resistance in moving stock and generally resorted to price-cutting promotions, yet even substantial concessions failed to drive bulk transactions; only sporadic "must-have" demand moved through the market, resulting in weak overall liquidity. Continued declines in maritime freight rates have further weakened the cost support for domestic thermal coal, leading to a persistent erosion of market confidence.

2. Major Producing Regions: Pit-head prices drop steadily; downstream buyers adopt a "wait-and-see" stance

Coal mines in the major producing regions of Shanxi, Shaanxi, and Inner Mongolia are facing simultaneous pressure, with pit-head prices in Yulin and Ordos dropping by 20 yuan over the week. A vicious cycle has emerged in these regions: the more prices are cut, the more buyers hesitate. Many mines lowered their quotes multiple times in a single day to stimulate transport, yet trader procurement has essentially stalled; aside from long-term contract supplies, the volume of coal circulating in the market has shrunk drastically. Feedback from mines indicates weak end-user demand and a lack of bulk restocking orders. Coal stockpiles at transfer stations and depots are rising while shipment paces slow, forcing mines to keep lowering prices to clear inventory. Consequently, cost support in producing regions is loosening, and prices are weakening in tandem with port prices.

3. Imported Coal: Concentrated arrival of low-priced supplies continues to divert domestic market demand

Last week, imported coal exerted significant market pressure as low-priced Australian and Indonesian coal—contracted earlier—arrived in bulk, leading to noticeable vessel backlogs at South China ports. Currently, the landed cost of imported coal is lower than that of domestic thermal coal with equivalent calorific value, offering a distinct price advantage. Many power plants have shifted to purchasing imported coal, directly diverting orders away from domestic supplies. Low international shipping rates continue to amplify the price advantage of imports, maintaining a spread between domestic and international prices. With ample import supplies available in the short term, imported coal is squeezing the market share of both domestic port coal and coal from producing regions, further exacerbating the oversupply pressure in the domestic market.

III. Demand-Side Breakdown: Weak thermal power demand; mixed performance in non-power sectors

1. Thermal Power Demand: "Plum Rains" suppress daily consumption; high inventories leave power plants with no incentive to restock

The "Plum Rain" season persists in the south, bringing frequent rainfall and lower-than-average temperatures. With hydropower generation running at full capacity and displacing thermal power output, daily coal consumption at coastal power plants remains under pressure, consistently failing to break through the 2-million-tonne mark. Current inventories at coastal power plants are sufficient to cover over 20 days of consumption. With reserves ample, plants are limiting purchases to the mandatory volumes required by long-term contracts; there is absolutely no willingness to proactively restock with market-priced coal, resulting in an extremely conservative procurement pace. While peak electricity consumption typically arrives between late July and August, the onset of high-temperature weather has been delayed this year; consequently, short-term demand for thermal power is unlikely to see a substantial rebound.

2. Non-power demand: Chemical sector provides slight support; cement demand remains virtually stagnant.

Non-power industries show a clear divergence: only the coal-chemical sector offers weak support. Operating rates in the coal-chemical industry remain around 90%, with stable "must-have" coal consumption providing a minor hedge against bearish market factors. Conversely, the cement industry has seen a sharp drop in operating rates due to staggered production suspension policies; demand has essentially stalled, and coal consumption continues to decline, failing to provide incremental market support. Overall, the non-power sector is unlikely to reverse the market's prevailing weakness.

IV. Key Bearish Factors

1. Delayed high-temperature weather: The "Meiyu" (plum rain) season in the south has not yet ended, preventing the release of cooling-related electricity demand and keeping daily thermal coal consumption at low levels. 2. High inventory across the supply chain: Inventories at Bohai Rim ports have hit record highs for this time of year, and power plant stockpiles are ample, extending the destocking cycle. 3. Continued impact of low-priced imported coal: Concentrated arrivals of overseas supplies and price advantages are diverting power plant procurement away from domestic sources. 4. Hydropower displacing thermal power: Abundant water inflows in southern river basins are squeezing the space for thermal power generation, keeping coal consumption weak.

With these multiple factors converging, the loose supply-demand balance seen last week is unlikely to reverse quickly, leaving room for further downside in coal prices in the short term.

V. Market Outlook

Short-term (Early July): Continued weakness and bottom-seeking.

The Yangtze River Delta will not exit the "Meiyu" season until July 8; until then, widespread high temperatures across the country are unlikely to materialize, and daily thermal coal consumption will not see a significant rise. Bearish factors—such as high inventories at ports and power plants and the impact of imported coal—will continue to weigh on the market. Coal prices are highly likely to continue their fluctuating downward trend as the market undergoes a period of adjustment under pressure.

Medium-term (Mid-to-late July – August): Peak-season demand delayed; market poised for a rebound.

Historical data shows that the peak period for daily thermal coal consumption typically falls between late July and August, with intermittent high temperatures occurring through September and early October. There is ample room for power plant electricity loads to rise; peak-season demand has merely been delayed, not eliminated. Once the rainy season ends in the Jiangnan region, sustained high temperatures will trigger a surge in residential electricity consumption for cooling; meanwhile, as precipitation in the river basin declines and hydropower output drops, thermal power will once again become the primary source of electricity supply. Following a period of inventory depletion, power plants will gradually ramp up restocking efforts, leading to a drawdown of port inventories. Coupled with a marginal slowdown in the arrival of imported coal, the supply-demand balance is expected to improve; consequently, thermal coal prices are likely to halt their decline, stabilize, and stage a short-term rebound.

SunSirs has been continuously tracking price data for over 200 commodities for nearly 20 years, please contact support@sunsirs.com for subscription.