China's domestic portside thermal coal market started August on a firmer note, with lower-CV coal prices strengthening first before higher-CV grades followed, as structural supply constraints continued to underpin the market. However, demand remained relatively subdued due to high stocks and utilities' cautious procurements, leaving the market in a delicate balance between tightening supply and measured buying appetite.

At major Bohai-rim ports, the shortage of Shanxi-origin coal and coal with low ash and high ash-fusion temperature has become increasingly evident. Participants said some end users with immediate delivery requirements had to purchase despite elevated prices.

The structural supply shortage has been reinforced by ongoing safety inspections and production restrictions in major mining regions. Some mines in Shanxi remained suspended, while recent incidents and renewed checks on excessive production in Shaanxi's Yulin have led to additional output reductions at some mines. Although supply recovery is expected eventually, some traders believe that production is unlikely to rebound quickly in the short term.

Meanwhile, shipping coal to northern ports remained economically unviable, exacerbating port availability, especially for lower-CV grades, which remained the strongest segment in the portside market.

Recent transactions showed 4,500 Kcal/kg NAR coal trading around 655-660 yuan/t, FOB northern ports with VAT, with some sellers reluctant to release cargoes below 655 yuan/t due to high transportation costs. A trader said 4,500 Kcal/kg NAR coal (S 0.6%) now had an all-in delivered cost of above 670 yuan/t, providing floor support to prices.

Some Inner Mongolia 4,600 Kcal/kg NAR coal (S 0.6%) was offered at about 670 yuan/t, while a deal was reached lately for Inner Mongolia 4,200 Kcal/kg NAR coal at 663 yuan/t.

Higher-CV grades also showed signs of strengthening, although demand remained selective. Cargoes of 5,000 Kcal/kg NAR coal (S 0.8%) were heard traded at 745-750 yuan/t, while some Shanxi 0.6%-sulfur same-CV coal changed hands at 760 yuan/t.

Offers of Shaanxi 5,500 Kcal/kg NAR coal (S 0.5%) were heard at 760 yuan/t or so and Shanxi 1%-sulfur same-CV coal was quoted at 840 yuan/t. However, some participants noted that high-CV coal demand remained relatively weak, with buyers mainly focusing on lower-CV cargoes for cost reasons.

The latest market activity suggested that spot prices have gained some upward momentum, but the market was still far from a strong rally. Traders said some buyers were replenishing inventories due to concerns over future supply availability and the need to fulfill downstream deliveries, while others remained cautious given that port inventories were still above historical averages.

Sxcoal's data showed the combined coal stocks at Qinhuangdao, Caofeidian, Jingtang, and Huanghua ports stood at 28.19 million tonnes as of July 31, exceeding the year-ago level by 13.44% and staying at the highest level for the same period in history.

While the inventory was down 5.55% from the week-ago level, partly driven by elevated power plant coal burns, comfortable plant stocks and still high port stocks allowed utilities to rely mainly on long-term contracts and make spot purchases only when necessary. As a result, buyers remained reluctant to chase higher prices, limiting upward potential.

Overall, China's thermal coal market is expected to move slightly higher in the near term, supported by tight supply and firm replacement costs, but gains are likely to be gradual. The market will closely watch mine production recovery, port inventory movements, and the impact of weather on coal consumption and logistics.

While temperatures stayed high in some eastern, central, and southern provinces, the upcoming arrival of Typhoon Dolphin is expected to bring heavy rainfall to parts of the regions from August 3-12, potentially disrupting port operations and affecting short-term procurement enthusiasm.

On August 3, the CCI index for domestic 5,500 Kcal/kg NAR coal at Qinhuangdao port was assessed at 831 yuan/t, FOB with VAT, rising 3 yuan/t from late last week. The index for 5,000 Kcal/kg NAR and 4,500 Kcal/kg NAR coal rose 3 yuan/t and 5 yuan/t, respectively, to 741 yuan/t and 650 yuan/t.

Import market firms

China's seaborne imported thermal coal market showed a modest recovery, backed by the recent pickups in domestic coal prices.

Some Indonesian low-CV coal prices moved higher as available cargoes tightened and shipping costs increased. However, overall trading activity remained limited due to weak end-user demand.

Indonesian 3,800 Kcal/kg NAR coal was heard trading above $64.5/t FOB late last week, compared with previous deals around $64/t FOB. Sources said the recent buying was mainly driven by traders covering previous positions and securing near-term cargoes, rather than a solid recovery of utility demand.

Sources said that the Panamax freight rates are set to rise further, partly due to potential weather disruptions in East Asia and stronger demand for vessel capacity from South American grain shipments. Higher freight costs have provided some support to imported coal prices in China.

Indonesian supply remained a key uncertainty. Some mines reportedly have received RKAB approvals for additional production of mid-and high-CV coal, while the outlook for low- and ultra-low-CV coal supply remained weak.

High-CV imported coal has become relatively more competitive against domestic cargoes. Australian 5,500 Kcal/kg NAR coal was recently traded around $95/t FOB for September loading, with freight rates at $18-18.5/t.

Some offers were heard at 882 yuan/t or so, CFR South China with VAT, with traders disclosing a price advantage compared with domestic equivalents. Some traders said Australian coal could serve as an alternative for Shanxi coal amid tighter domestic supply, indicating limited downward likelihood in the near term.

On August 3, the CCI index for Indonesian 3,800 Kcal/kg NAR coal stood at $63/t FOB and $74/t CFR South China port, rising $0.5/t and $0.8/t compared with later last week. The index for Australian 5,500 Kcal/kg NAR coal remained flat at $113/t CFR.