Activity marginally picked up in China's seaborne import thermal coal market, with utilities increasing tenders and traders raising bidding prices, as the price disadvantage of seaborne cargoes was mitigated by the continued rally in domestic prices and coastal freight rates.

A few major utilities resumed tenders for import cargoes after a brief lull, a move that trader sources interpreted as growing confidence in a further narrowing of the import-domestic price spread. Still, some participants remained wary of policy uncertainties from Indonesia and potential supply-side pressure.

While domestic resources remained competitive in prices, the ongoing rise in spot prices and coastal freight rates pushed up the delivered costs to southern end users, eroding the appeal of domestic cargoes.

Sxcoal's data showed that the freight rate for the 60,000-70,000 DWT vessels carrying coal from northern China's Qinhuangdao port to the southern Guangzhou port surged to 62 yuan/t on March 23, representing a 22% jump from the week-ago level.

As a result, the cost gap between imported and domestic coal narrowed significantly. Indonesian 3,800 Kcal/kg NAR coal was priced 19.53 yuan/t higher than domestic 4,500 Kcal/kg NAR coal on a CV-adjusted and delivered-to-South China basis, narrowing significantly by 23.23 yuan/t compared with the week prior. The gap for Australian 5,500 Kcal/kg NAR coal against domestic material also shrank to 25 yuan/t from 46.2 yuan/t a week earlier.

"If utilities continue issuing tenders, it signals they expect imported cargoes to regain a price advantage. Once that expectation builds, import volumes will follow," said a Singapore-based trader source. "We've already received inquiries for imported low-CV cargoes with low sulfur content.

Bid prices to utility tenders for Indonesian 3,800 Kcal/kg NAR coal ascended further to over 545 yuan/t CFR South China with VAT, netting back to roughly $60/t FOB East Kalimantan for Panamax cargoes. That compared to last week's awarded levels for the same grade by a southern utility at $56.4-56.6/t FOB, Sxcoal's tracking data showed.

Trader sources said Indonesian coal suppliers remained largely absent from the market due to Eid al-Fitr holiday, leaving FOB offers largely pinned to index levels. Several offers for Panamax cargo of 3,800 Kcal/kg NAR coal were heard at $61/t FOB or so, with occasional low offers heard at about $56-57/t for prompt supplies.

Meanwhile, the seaborne freight rate to South China hovered high at around $10/t, keeping landed costs to China at high levels.

Participants expected a pickup in availability next week following the holiday, potentially soften FOB prices. Adding to the supply outlook, President Prabowo Subianto has called for coal production ramp-up this year, partly to capture windfall profits as global energy prices rise. However, some sources believe any meaningful increase in production quotas is unlikely before the second half of the year. 

The prospect of an Indonesian export tax is adding a layer of uncertainty to forward costs. Most trader sources preferred to stay temporarily in a wait-and-see mode until the policy direction becomes a bit clearer post-Eid al-Fitr holiday.

Elevated N China port prices

China's northern transfer ports saw prices rise further, driven by increased utility inquiries to fill import gaps and higher delivered all-in costs due to rising production-area offers and domestic freight rates.

Sentiment remained bullish on March 24. Sources reported smoothened sales for Shanxi 4,500 Kcal/kg NAR with 0.4%-sulfur at 590 yuan/t FOB northern ports with VAT, yet sellers largely pegged offers to above 600 yuan/t. Cargoes of 1%-sulfur were offered at index parity, though a few were open for negotiation.

Traders reported that cost support from production areas remained strong, with some predicting the current rally could extend into early April.

Yet the upward momentum also faces headwinds from the ongoing inventory build at northern ports and potential utility shift-back once domestic prices exceed import costs again.

Combined stocks at Qinhuangdao, Caofeidian, Jingtang, and Huanghua ports reached 28.2 million tonnes as of early March 24, marking a 3.17% gain from a week ago and a 18.5% rise compared with the preceding week. Certain ports have started to restrict cargo arrivals due to fast-rising stocks, potentially capping the overall upward space.

Meanwhile, while sellers were increasingly reluctant to offer cargoes amid bullish sentiment, actual high-priced transactions remained sparse amid subdued off-season consumption, highlighting a lack of fundamental support for a marked price hike.

"Utilities are maintaining rational inventory levels and won't chase prices aggressively in the off-season," said a trader source in central China. "We'll likely see some volatility ahead, but any pullback should be limited given the cost support."