China import thermal coal prices extended their rally over the past week, with the pace of gains accelerating from earlier periods, as intensifying supply-demand tug-of-war kept prices elevated at high levels.

Sxcoal data showed the CCI index for import 3,800 Kcal/kg NAR coal was assessed at $68.5/t FOB as of August 25, up $1/t from the previous day, while the CCI 4700 Import index stood at $90/t, also $1/t higher. Since mid-July, import thermal coal FOB prices have climbed steadily, accumulating gains of $6.5/t and $8/t respectively.

On the supply side, limited Indonesian availability and tight market supply underpinned prices, while on the demand side, import coal prices at current cyclical highs have narrowed their price advantage, fueling concerns about chasing highs and restraining demand release.

Indonesian coal supply has been significantly affected by extreme drought conditions, with river water levels declining and some miners issuing force majeure notices expected to last until mid-September.

Meanwhile, Indonesia's slow approval progress for miners' work plans and budgets (RKAB) production quotas has restricted supply from major mines, keeping offers firm amid tightening availability.

Market participants reported Indonesian 3,800 Kcal/kg NAR Panamax thermal coal was offered at $71/t FOB, with some transactions concluded at $70/t, up $1/t from the previous week. Freight for Panamax vessels from South Kalimantan to southern China ports stood at around $10/t.

Australian thermal coal supply was relatively better, though some 5,500 Kcal/kg NAR cargoes traded at $100/t FOB, translating to port-delivered costs exceeding 910 yuan/t, leaving limited price advantage over domestic coal.

On the demand side, coastal power plants held ample inventories. Typhoon-related rainfall in some regions kept hydropower output high, while daily coal consumption declined, prompting end users to restock only in small batches for essential needs with subdued purchasing enthusiasm.

Market participants noted recent tenders by power plants for 3,800 Kcal/kg NAR thermal coal drew bids above 600 yuan/t, CFR South China with VAT, compared with a low of 585 yuan/t last week. End users in eastern and southern China showed purchasing interest but adopted a wait-and-see stance amid concerns over high prices, limiting actual transaction volumes.

Meanwhile, rising domestic coal prices provided some support to import coal, but the narrowing or even reversing price spread between domestic and imported coal has eroded the latter's competitive edge, gradually weakening bullish factors in the import market. Overall, market sentiment remained cautious, with firm bids to utility tenders but subdued trading activity and notable buyer-seller divergence.

Looking ahead, market support factors remain concentrated in persistent Indonesian drought, RKAB approval uncertainties, firm overseas offers, and support from strong domestic coal prices.

However, typhoon weather may continue to suppress coal consumption at power plants, and ample inventories mean short-term procurement demand is unlikely to see significant expansion. Should Indonesia accelerate quota approvals or weather conditions improve, supply-side pressure could ease, potentially reasserting downward pressure on prices. Key factors to monitor include Indonesian river water levels, RKAB approval progress, domestic hydropower output and daily consumption changes at end users.