Chinese traders became increasingly inactive in utility tenders for Indonesian thermal coal, as elevated offers from overseas miners squeezed arbitrage, while anticipated weaker heating demand and the loss of seaborne coal price advantage may push some power plants to lean more on domestic supplies.

On February 10, the CCI index for Indonesian 3,800 Kcal/kg NAR coal reached $51/t FOB, rising $2/t week on week and notching the highest level since November 25 last year.  The CCI index for Indonesian 4,700 Kcal/kg NAR coal rose to $68.5/t, up $2.2/t from the week before.

Some offers of Panamax 3,800 Kcal/kg NAR coal surged to $54.5-55/t FOB for March-loading laycan. This prompted Chinese traders to significantly lift their bidding prices to utility tenders. A recent tender saw bids exceed 480 yuan/t CFR South China with VAT for March to early April-delivery, netting back to around $55/t FOB East Kalimantan on a Panamax basis.

Import tenders receive very few participations this week, according to a Guangdong-based trader source. "Indonesian coal prices are generally high, heightening challenges in securing cargoes to fulfill utility tenders," he said, adding there's no need chasing the market now.

More traders have avoided procurement and commitment to utility demand at current elevated prices. High uncertainties surrounding Indonesia's RKAB production quotas have also remained one of the key concerns.

Some participants warned that China's demand is poised to wane further as the winter comes to an end. Power plants' coal burns fell markedly in China due to the pre-holiday lull and moderated temperatures.

Data showed that coal consumption at power plants in the coastal provinces, which are the major consumers of seaborne cargoes, slumped 10.1% week on week and 12.1% on the month to 2.01 million tonnes as of February 6.

Additionally, some end users may shift their interest to domestic cargoes, which have shown an increasing price edge compared with Indonesian cargoes. Sxcoal's estimate on February 9 indicated that domestic 4,500 Kcal/kg NAR coal enjoyed a delivered-to-South China advantage of 4.62 yuan/t compared with the Indonesian 3,800 Kcal/kg NAR grade, on a CV-adjusted basis, a reversal from the previous month's 16.7 yuan/t disadvantage.

However, the fact that Indonesian low-CV grade serves as a key blending fuel for some Chinese power plants to reduce ash and sulfur has made it hard to be completely replaced by domestic grades. Some must-buy demand will persist even though prices have risen above China's domestic equivalents.

Participants said the short-term outlook remained supported by tight import availability, but the longer-term direction will depend on China's post-holiday demand and supply recovery, and changes in power plant inventories.

Indonesia's coal exports to mainland China tumbled 35.49% on the month to 15.87 million tonnes in January, according to Kpler's cargo-tracking data.

China market strength extends

In China's domestic market at northern ports, offer prices gained moderate strength, driven partly by emerging price advantage and tight availability of seaborne cargoes. Sources said inquiries were primarily concentrated on lower to mid-CV grades.

However, overall activities have entered a holiday lull, with more traders starting holidays, leaving only sporadic purchases settling at slightly higher levels. Participants anticipated limited upside ahead of the holiday.

Market views suggest any post-holiday tailwind will be short-lived, with the rally ultimately capped by the recovery of domestic supply and the onset of thermal coal's off-peak season.