China's domestic thermal coal market at northern transshipment ports extended its weakening streak on June 26, with thin liquidity and mounting inventory pressure weighing heavily on sentiment, as downstream buyers remained largely on the sidelines in anticipation of further declines.

Offers for 5,000 Kcal/kg NAR coal at northern ports were heard in a range of 750-760 yuan/t, FOB northern ports with VAT, though actual negotiable levels have moved substantially lower. Cargoes with 0.8% sulfur content were being discussed at discounts of around 8 yuan/t below the weekly CCI 5000 index.

Cargoes for 4,500 Kcal/kg NAR coal with similar sulfur specifications were also being negotiated at comparable index-linked discounts, with the overall buying interest negligible. Higher-CV 5,500 Kcal/kg NAR coal was heard offered at 850-855 yuan/t, but sellers reported that even offers at the lower end of that range failed to attract any downstream buying interest.

The persistent weakness has left many traders in a difficult position. Some said they were holding off on aggressive price cuts despite the gloom, preferring to rotate inventory and wait for a seasonal pickup in demand.

However, others have begun to capitulate, with a few opting to offload cargoes at levels well below index to avoid further losses amid growing stockpile pressure and rising instances of spontaneous combustion at ports due to high temperatures.

Sxcoal's data showed that the combined coal stocks at the ports of Qinhuangdao, Caofeidian, Jingtang, and Huanghua stood at 28.34 million tonnes as of June 25, rebounding 1.24% from a week earlier and still hovering near historical highs for this time of year.

This was partly owing to reduced outflows. The number of anchoring vessels at these ports fell to 103 on the same day, the lowest since April 12, and the daily average so far this week of 111.3 vessels marked a 25.5% decline from the previous week and a 15.6% drop from the first half of June, signaling persistently weak downstream procurement activity.

Some traders expressed growing anxiety over the potential rapid erosion of prices, given that supply remains abundant not only at ports but also at mines and end users.

A trader in Inner Mongolia said the overall supply remains ample, despite ongoing safety inspections capping output at a few mines and resumed mines producing below their earlier levels. Mine-mouth prices in Shaanxi and Inner Mongolia dropped by a further 10-20 yuan/t on June 26, indicating that cost support from the mine side has started to weaken.

Traders were broadly cautious, anticipating over 30 yuan/t decline in total. "The market has lost its initiative and is now entirely reliant on weather-driven demand, which makes it difficult to offload cargoes," said a Beijing-based trading source.

Some traders held out hope that the conclusion of the plum rain season in the Yangtze River basin in July and a seasonal pick-up in power consumption later in the month could provide some support.

The National Development and Reform Commission said earlier last month that China's peak summer power load was expected to reach around 1.6 TW, up about 90 GW from last summer. Meanwhile, the El Nino phenomenon increases the likelihood of extreme weather, potentially reinforcing the role of coal-fired power as a pillar of supply security.

On June 26, the CCI Index for 5,500 Kcal/kg NAR coal stood at 851 yuan/t FOB with VAT, down 5 yuan/t day on day; the index for 5,000 Kcal/kg NAR and 4,500 Kcal/kg NAR coal also dipped 5 yuan/t to 759 yuan/t and 659 yuan/t, respectively.

Import market sentiment improves

Importers reported a moderate shift in sentiment in China's seaborne import thermal coal market, as short-covering activity picked up pace amid swirling market chatter over Indonesian supply-side constraints, including the recent export control due to domestic power plants' supply shortage.

The emergence of fresh buying interest from traders looking to square off earlier short positions has helped curb panic selling, with several participants who had refrained from taking short positions now showing little appetite to lower prices.

Meanwhile, the recent sharp drop in both international and China's coastal freight rates has improved the cost competitiveness of seaborne thermal coal into power plants along the Yangtze River, prompting some utilities to release tenders for imported cargoes.

Traders noted that the freight-driven cost advantage, combined with the easing of bearish sentiment, has brought some buying interest back to the import market after weeks of relentless selling pressure.

Sxcoal's tracking data showed on June 26 that bids for early August-delivery Indonesian 3,800 Kcal/kg NAR coal to utility tenders stood at as low as 560 yuan/t CFR with VAT South China, translating to roughly $63/t FOB on a Panamax basis.

For high-CV coal, Australian 5,500 Kcal/kg NAR coal faced downside pressure, with weak utility demand for high-CV material adding to selling difficulties.

"We are seeing slightly more utility tenders recently, but competition is also very fierce," said a Fujian-based trader source. "The outlook for August and beyond remains uncertain and will largely hinge on summer demand and Indonesian mining production quotas."

On June 26, the CCI index for Indonesian 3,800 Kcal/kg NAR coal was at $64.5/t FOB and $74.5/t CFR, unchanged day on day. The index for Australian 5,500 Kcal/kg NAR coal was at $114.5/t CFR, down $2/t from a day ago.

Most participants expect both the domestic and import markets to remain fragile in the near term. However, some believe a turning point could emerge in mid-to-late July if seasonal heat-driven demand materializes as expected and begins to absorb the high inventories across the supply chain.