China's domestic thermal coal market remained supported by continued production constraints and resilient demand on October 23, pushing prices to new highs. However, this strength is intensifying concerns about the sustainability of the ongoing rally.

Northern mining regions witnessed uninterrupted truck queues, with mid-to-high-CV grades remaining particularly sought-after. According to Sxcoal's latest weekly survey covering 160 thermal coal mines in Shanxi, Shaanxi, and Inner Mongolia, coal stocks at sampled mines dropped 3.11% week on week to 3.98 million tonnes on October 22, relatively lean levels that continued to favor price rally.

Steel mills and chemical plants made active stockpiling during the "Silver October", with railway station-based traders and washing plants coordinating aggressive shipments. Meanwhile, winter stockpiling gained additional momentum across northern regions with the heating season gradually commencing.

Over the next 10 days, the average temperature in most parts of central and eastern China is forecast to be 1-3 degrees Celsius lower than the same period in previous years, with some areas such as central Inner Mongolia experiencing temperatures 4-5 degrees Celsius lower than usual, according to the National Meteorological Center. A few high-altitude regions may see moderate snow or sleet.

As such, major power plants reported slower-than-expected declines in coal consumption. They gradually rebuilt inventories given the early arrival of a cold winter. Some inland utilities even saw fuel stocks ticked up 0.3% on the week and 4.9% on the month as of October 20, Sxcoal data showed.

In addition, a leading Chinese miner's third-party coal buy price hikes post-holiday have reached 72 yuan/t for certain grades starting October 21, substantially bolstering market confidence. Suppliers hence rushed to adjust their offers higher.

On October 23, Sxcoal assessed Datong 5,500 Kcal/kg NAR coal at 638 yuan/t, mine-mouth with VAT, unchanged on the day, while Ordos 5,500 Kcal/kg NAR material increased by 3 yuan/t to 586 yuan/t. Yulin 5,800 Kcal/kg NAR grade gained 4 yuan/t from the previous day to 640 yuan/t.

In Shaan's Yulin, prices for 5,800 Kcal/kg NAR raw coal (S 0.7%) jumped 40 yuan/t to 606 yuan/t, driven by decent offtakes. Inner Mongolia-origin 5,300 Kcal/kg NAR washed chemical coal (S 0.2%) gained 10 yuan/t to 551 yuan/t, mine-mouth with VAT.

"Sales have been fairly good recently. We haven't been affected by tightening safety checks and will hold prices firm," said an Ordos-based producer.

Stricter safety inspections in Shaanxi and Shanxi led to temporary production halts at a few mines. Several mines also completed monthly production quotas by the month-end, further constricting supply. The average capacity utilization of Sxcoal-surveyed mines dropped 2.7 percentage points to 88.23% in the week ending October 22, shoring up the mine-mouth market.

However, sustained price increases met downstream resistance. Only essential purchases were made at current pricing levels. The fact that some traders were offering minor discounts to facilitate transactions suggests the market may be approaching the ceiling.

Portside price growth cannot keep up with the rises in major producing regions, suppressing traders' profits in port-bound shipments.

"Prices are hard to continue rising, as we estimate that the top Chinese miner will not increase buy prices this week," a Zhunger-based miner told Sxcoal. He raised raw coal offers by 5 yuan/t, a much slower adjustment compared with the earlier week.

Another miner source in Yulin confirmed that while prices have increased, downstream inventories remained relatively high, capping further gains. Some low-sulfur grades even experienced minor slides, with 4,300 Kcal/kg NAR mixed coal down 4 yuan/t to 362 yuan/t, mine-mouth with VAT.