China’s daily coal output near highest this year, authorities continue crackdown on coal market

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China’s daily coal output hit 11.7 million tonnes on November 3, close to the highest level this year, and output is expected to increase further as planned maintenance at coal mines gradually ends, the National Development and Reform Commission (NDRC), the top economic planner, said on Thursday.

Coal inventories at power houses across the country stood at 112 million tonnes on November 3, equivalent to 20 day’s coal consumption at the plants, up by more than 31 million tonnes from end-September, and have clawed back to normal levels in previous years, said the NDRC.

Coal inventories at power plants in the three provinces in Northeast China are 32 days’ consumption, 25 days in Hunan, Hubei and Jiangxi provinces and above 20 days for Guangdong, Guangxi, Guizhou and Yunan provinces, it said.

China Energy Group, the country’s biggest coal miner by production, said on Thursday that it produced 50.64 million tonnes of coal in October, jumping above 50 million tonnes mark for the first time on record and rising by 9.1% from a year earlier.

On November 3, the company’s daily coal output hit a new record high of 1.77 million tonnes, it said.

Meanwhile, coal inventories at Qinghuangdao port, a major coal transporting hub in northern China, exceeded 5.1 million tonnes on Wednesday, a level even higher than a year ago, it said.

Coal prices at mines and ports have dropped significantly, said the NDRC.

Producers including Inner Mongolia Yitai, China National Coal Group and China Energy Group had lowered their prices, followed by more than 10 major companies that “proactively” cut their prices of 5,500 kcal/kg thermal coal to below 1,000 yuan per tonne, according to the NDRC.

Thermal coal futures on China’s Zhengzhou Commodity Exchange have plunged 56% from a historic high of 1,982 yuan per tonne logged on Oct. 19.

Meanwhile, the authorities continued to crack down on irregularities that disrupt market order. China’s top three coal producing regions – Shanxi, Inner Mongolia and Shaanxi – have launched campaigns to probe illegal coal storage sites, said the NDRC.

“Spot coal prices dropped sharply by about 1,000 yuan per tonne. But large coal companies are not affected by the market prices as they have signed long-term supply agreements, which had been well below market prices,” said a staff at a listed coal company.

When market coal prices hit as high as 2,400 yuan per tonne, the price for the company’s long-term supply contract remained lower than 900 yuan per tonne, he said.

Prices of many industrial products, which had surged earlier this yea driven by surging coal prices, have been sliding since end-October amid falling energy costs.

Prices of methanol materials fell by 3.5 per cent in four days after the NDRC announced the plan to intervene in coal market. Composite steel prices fell by 3 per cent to 6,117 yuan per tonne on October 26 from 6,319 yuan per tonne on October 19.

Several cement producers in South China including Guangdong province and Guangxi province recently cut cement prices as production picks up amid easing energy curbs, market demand remains weak and inventories rise, according to industry information provider ccement.com.

Some companies in the Pearl Delta Region have cut prices by 100 – 120 yuan per tonne since October. Large cement companies in east Guangdong province recently cut prices by 10 – 15 yuan per tonne after lowering prices by 35 – 55 yuan per tonne in mid-October, according to ccement.com.

Despite the recent plunge, analysts believe that coal prices have not bottomed yet.

“Coal inventories at power plants have increased notably and looking ahead, downstream companies’ restocking demand will not be as strong as that in September. And if coal demand at power generators in November and December is not as strong as earlier expected, the coal supply will shift to market,” said Cheung Xiaoyong, research director at Bocheng Futures.

If the authority set out-head thermal coal prices at levels as media reported, there is more room for price declines, he said.

While the initial drop in coal prices were triggered by regulatory crackdown but later, with coal supplies from increased capacity in September gradually enters the market, the supply/demand fundamentals will gradually change, he said.