China’s coal futures tumble after state planner pledged to take measures to ensure supply, forecast price drops

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China’s coal futures and stocks of coal miners tumbled on Monday after the country’s top economic planner pledged to ensure coal supply, including increasing coal imports and releasing coal reserves, and forecast coal prices to enter a downtrend in July.

China’s most actively traded thermal coal futures contract on the Zhengzhou Commodity Exchange, for September delivery, tumbled more than 7 per cent to drop below 800 yuan per tonne, closing domestic trading session at 790.2 yuan per tonne. The most-traded coking coal futures contract fell more than 4 per cent. Shares of coal miners tumbled on the day, with a gauge tracking mainland-listed coal miners sliding more than 4 per cent.

The National Development and Reform Commission (NDRC) said on Sunday that there was no basis for a further hikes in coal prices, and forecast that prices will enter a downward channel in July and drop significantly, as hydropower and solar power generation is expected to pick up and more measures are prepared to ease a supply crunch. 

The NDRC will take various measures such as increasing coal output and imports during the summer peak and also plans to release more thermal coal from its reserve to ensure market supply, it said, without disclosing the amount it plans to release.

According to the NDRC, coal miners which had suspended production amid safety inspections in China’s major coal production hubs will gradually resume production and their output is expected to recover to early-June level in early July.

Meanwhile, based on orders for coal imports, June and July are expected to see a surge in coal imports which will add domestic coal supply, said the NDRC.

Since mid-May, several government departments have vowed to curb the fast growth of commodity prices, which led to declines in some commodities’ prices. However, since the end of last month, coal prices rebounded driven by expectations of short supply amid stepped-up safety inspections.

The recent rebound in coal prices was mainly the result of low trading volume affected by increasing offer prices, besides medium- and long-term contracts, the NDRC said.

At the end of May, factories in South China’s Guangdong province were told by local authorities to curtail electricity use during peak hours, as electricity consumption has been surging due to the accelerated recovery in business activities and the continued high temperatures.

Zhan Ni, thermal coal analyst at consultancy MySteel, said that the recent drop in coal output was mainly due to stepped-up safety inspection following a series of accidents at coal mines as well as a lack of “coal tickets” forced some coal mines to suspend production.

The nation-wide safety inspection is expected to last until early July, which that will continue to add pressure on coal production in the short term, according to a note from Industrial Securities. On the demand said, average daily consumption of thermal coal has largely returned to a normal level, but facing the upcoming peak season, thermal coal inventories remain insufficient and coal prices are expected to remain elevated in the short term, according to the note.

Industry insiders say that customs in Chinese provinces of Guangdong, Guangxi, Jiangsu, Zhejiang and Fujian recently relaxed restriction on coal imports except those from Australia and have said coal imports that arrive before the end of June will not be counted into annual quota. Analysts say the authority is currently encouraging coal imports and further relaxations can’t be ruled out.

China’s coal imports fell 4.6 per cent in May from a year earlier to 21.04 million tonnes and for the first five months of the year, China’s coal imports fell 25.2 per cent year over year to 111.17 million tonnes.

Analysts say that the significant drop in coal imports during the first five months indicates that there is a big potential for increased in the remainder of the year.