China's coastal coal freight rates declined further last week amid prevailing bearish sentiment, though the pace of the decline narrowed as rates approached relatively low levels.

The China Coastal Coal Freight Composite index, which tracks rates for vessels carrying coal from northern China ports to ports in the east and south, decreased 5.07% from the week before to 672 points on July 3, according to the Shanghai Shipping Exchange. It plunged 45.52% compared to month-ago levels and declined 1.58% from a year ago.

Widespread rainfall across southern China last week suppressed cooling demand while boosting hydropower output, thereby reducing coal-fired power generation. This kept coastal power plant coal burns at relatively low levels. Coupled with already high inventories, vessel booking activity remained subdued.

At the same time, falling imported coal prices narrowed the price gap with domestic cargoes, prompting some end users to switch to imported coal and diverting demand away from domestic shipments. Against this backdrop, freight rates on most routes kept sliding lower.

That said, several routes have seen rates edge near operating costs, leaving little space for steep further drops.

During the week, all shipping routes decreased 0.4-4.3 yuan/t compared to week-ago levels. The freight rate for the 50,000-60,000 DWT vessels carrying coal from Qinhuangdao to Guangzhou port fell 3.7 yuan/t from a week ago to 41.1 yuan/t on July 3, while that for 60,000-70,000 DWT vessels on the same route decreased 4.1 yuan/t to 35.1 yuan/t.

Internationally, the Baltic Dry Index (BDI), tracking rates for ships carrying dry bulk commodities, stood at 2,717 points on July 3, up 7.65% compared to 2,524 points a week ago.

The Asian thermal coal market stayed weak. Panamax vessels from Indonesia to China decreased by $0.15/t from the previous week to $9.04/t on July 3. Supramax freight rates on the route hit $12.3/t, down $0.12/t compared to a week earlier, while Capesize vessels from Australia to China ticked up $0.05/t week on week to $16.72/t.

Looking ahead, vessel booking demand is unlikely to recover meaningfully before the end of the rainy season in southern China, keeping coastal freight rates under pressure. However, approaching typhoon and resulting potential disruption to vessel operations may provide short-term support to freight rates.