China's seaborne imported thermal coal market softened toward the end of the week, as prices eased amid more prompt cargoes, increased profit-taking by some traders and growing cautious buying from major power utilities.

Some offers for Indonesian 3,800 Kcal/kg NAR coal were heard to have declined to $78-79/t FOB for Panamax cargoes, while a few traders, however, were still sticking to $81/t level due to high costs, although Chinese buyers were increasingly resisting those high levels.

Traders holding utility-linked orders were heard to seek cargoes around $78/t, while those without confirmed downstream demand were generally unwilling to take fresh positions, sources noted.

Australian 5,500 Kcal/kg NAR coal was heard offered at $108-110/t FOB, while some Chinese buyers reportedly bought supplies at 970-980 yuan/t, CFR South China with VAT, which translated into roughly $102.5/t FOB on a Capesize basis.

"Some Chinese buyers could still accept those delivered levels to meet essential demand, but procurement interest is likely to weaken further and high offers are increasingly difficult to proceed," said a Guangdong-based trader source.

One state-run Chinese utility canceled its centralized procurement plan for seaborne imported coal on September 10, adding more cautious sentiment in the market.

The weakness also came as prompt import availability was set to increase. Participants said more cargoes were scheduled to arrive around late September and early October, creating a temporary concentration of supply just as utility coal consumption has showed early signs of slowing.

Some traders therefore expect the import market to remain under pressure until at least October, with a more meaningful recovery potentially delayed until the middle or latter part of the month.

However, a significant decline was also seen as unlikely, as still climbing international freight rates were partly preventing import prices from falling sharply in southern China.

The Panamax freight rate from South Kalimantan to South China edged higher to about $12/t, while Australia-to-South China Panamax freight was around $24/t, trader sources said.

Rising oil prices are still likely to further push up freight rates, which means that Chinese buyers cannot easily push prices sharply lower because freight and replacement costs remain high. However, it may potentially pass on more pressure to overseas miners to correct FOB offers.

Besides, the import market has also been underpinned from supply constraints in both Indonesia and China, making a sharp decline less possible.

Supply availability in Indonesia has been curbed by still pending official approvals for additional RKAB mining quotas for some miners and a growing threat from lower river water levels amid El Nino-led drought.

Meanwhile, coal supply in China's domestic major production areas has also been hampered by tightened safety requirements, which left hidden working faces at some mines unworkable.

On September 11, the CCI index for Indonesian 3,800 Kcal/kg NAR coal stood at $78/t FOB and $90/t CFR South China port, falling $1/t and $0.5/t day on day respectively. The index for Australian 5,500 Kcal/kg NAR coal was down $1/t to $133/t CFR.

Higher buyer resistance in domestic market

China's domestic market at northern port was showing growing signs of correction approaching the end of the week, with muted downstream demand and increased profit-taking weighing on spot trading.

Offers have become slightly more abundant as traders seek to lock in profits. Some traders released cargoes with lower costs because inventories accumulated earlier in the rally still offered room for profit.

Several participants said cargoes were increasingly being offered at discounts to prevailing CCI index levels, while some traders were willing to lower prices to improve liquidity. Utilities were increasingly reluctant to chase the market after having covered much of their requirements through long-term contracts.

The latest market indications showed the shift in sentiment was accelerating. One Inner Mongolia-based trader source offered 0.6%-sulfur 5,000 Kcal/kg NAR coal at 900 yuan/t, FOB northern ports with VAT, which was down from earlier 920 yuan/t offers earlier this week yet still attracted little buying interest.

A cargo of 0.8%-sulfur same-CV coal was heard traded at 880 yuan/t, suggesting that some sellers had already begun accepting lower prices to secure shipments.

Another participant from the same region said even 4,500 Kcal/kg NAR coal offered around the weekly average of the CCI 4500 index was difficult to sell, expressing a growing likelihood for prices to fall below the 800 yuan/t supporting level.

Speculative buyers were largely staying out of the market, preferring to wait for clearer evidence of a price correction.

Participants were increasingly divided on the near-term market. While some sources expect only a limited correction because supply remains insufficient to generate comfortable replacement margins for port traders, some expect prices to retreat by 40-50 yuan/t before finding a floor.

Demand may remain too weak to absorb available spot cargoes even if supply remains tight; some traders may be still focusing on selling rather than buying after previous rally moved prices beyond the level that downstream end users are willing to accept, one eastern China-based trader source commented.

Demand may remain too weak to absorb available spot cargoes, even amid ongoing supply tightness. With the previous rally pushing prices beyond downstream tolerance levels, some traders remain focused on offloading stocks rather than building new positions, one eastern China-based trader source commented.

On September 11, Sxcoal's CCI index for domestic 5,500 Kcal/kg NAR coal at Qinhuangdao port dipped 1 yuan/t day on day to 989 yuan/t. The index for 5,000 Kcal/kg NAR coal fell 2 yuan/t to 892 yuan/t, while the index for 4,500 Kcal/kg NAR coal was down 3 yuan/t to 805 yuan/t.