Sentiment in China's seaborne import thermal coal market has steadied over the past couple of days. A pickup in short-covering and renewed buying interest from power plants along the Yangtze River have absorbed much of the bearish excess, prompting a growing number of traders to resist further price concessions.

A sharp decline in freight rates has recently made imported coal competitive again relative to China's domestic supplies. Several power plants along the Yangtze River have begun actively tendering for imported low-CV material, thanks to its persistent advantages in low sulfur and low ash content that domestic alternatives struggle to match.

Traders revealed that the rates from Indonesia's South Kalimantan to South China hovered slightly below $8/t for Panamax vessels and $10/t for Supramax shipments, down by about 11% week on week and slumping by over 30% from the start of the month.

With liquidity in the low-CV segment improving since late last week, the panic-selling has largely disappeared. Those who had stayed on the sidelines and refrained from building short positions were showing little appetite to add further pressure. Some sources said that the latest indications point to a tentative floor forming for seaborne imported Indonesian coal.

Indonesian miners, however, have maintained relatively firm offers amid limited inventory pressure. A few miners faced tight RKAB mining quota constraints and some prioritized domestic allocations in the wake of tight local supply and a potential upward revision to the DMO requirement, which may continue to cap overall supply to the export market and lend another layer of support.

Utility buying interest, however, remained largely concentrated at low levels. Buying indications for August delivery Panamax Indonesian 3,800 Kcal/kg NAR coal were heard at approximately $66.5/t FOB.

The recent bids to tenders for this grade have clustered around 560-570 yuan/t CFR South China with VAT, with the lowest level netting back to around $63.5/t FOB on a Panamax basis and $60.2/t on a Supramax basis.

Some traders added that while the physical market may have found a near-term floor, major benchmark indices could still drift lower in the coming sessions, given that the bulk of the freight-led correction has yet to be fully reflected in benchmark assessments.

The high-CV segment, however, continued to face headwinds, as June and July-arriving Australian cargoes remained plentiful, and southern Chinese ports stayed well-stocked and end-user appetite for higher-grade material stayed thin.  

Australian 5,500 Kcal/kg NAR coal was heard offered at around $95/t FOB, with buying interest languishing near $85/t FOB, and delivered prices have slipped from above 930 yuan/t earlier in the month to as low as 850 yuan/t.

However, August-delivering availability remained comparatively low, which could eventually ease the pressure on pricing, sources reckoned. Capesize freight rate from Newcastle to South China was heard around $13-14/t, also down sharply by 38% or so from early this month.

On June 29, the CCI index for Indonesian 3,800 Kcal/kg NAR coal was at $64.5/t FOB and $74.5/t CFR, unchanged from late last week. The index for Australian 5,500 Kcal/kg NAR coal was at $112.5/t CFR, down $2/t from June 26.

China domestic market under pressure

Domestic portside thermal coal market continued to drift lower amid tepid end-user demand and high port inventories.

Continued rainfall and resulting cooler weather across coastal regions have slowed the seasonal uptick in power consumption, leaving utilities with ample stocks and limited appetite for additional spot purchases. A few utilities have shifted demand to cheaper import alternatives, also adding downside pressure.

Offers for 5,000 Kcal/kg NAR coal were heard in the 740-750 yuan/t range, FOB northern port with VAT, with tepid spot transactions reported in that range. Cargoes of 5,500 Kcal/kg NAR material were quoted at 850-855 yuan/t. Some sellers were willing to offer discounts of 5-8 yuan/t below weekly CCI index averages for 4,500 Kcal/kg NAR and 5,000 Kcal/kg NAR grades, though actual transactions remained scarce.

Market participants expect domestic prices to remain under pressure in the near term, with some traders projecting a potential decline towards the psychologically supporting level of 700 yuan/t for 5,000 Kcal/kg NAR coal.

Near-term pressure is expected to continue, depending largely on port inventory drawdown and the pace of summer peak demand restoration.

On June 29, the CCI Index for 5,500 Kcal/kg NAR coal stood at 846 yuan/t FOB with VAT, down 5 yuan/t from late last week; the index for 5,000 Kcal/kg NAR and 4,500 Kcal/kg NAR coal also dipped 5 yuan/t to 754 yuan/t and 654 yuan/t, respectively.