China's coastal coal freight rates retreated last week as the upcoming Dragon Boat Festival holiday dampened trading activity. Limited demand and weakening support from operational costs jointly pressured freight rates lower.

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, declined 6.69% from the week before to 1,143 points on June 18, according to the Shanghai Shipping Exchange. It decreased 8.61% compared to month-ago levels but jumped 66.08% from a year ago.

As the middle and lower reaches of the Yangtze River entered the rainy season, strong rainfall boosted hydropower output and curbed residential cooling demand, limiting upside potential for coal consumption at coastal power plants. Major utilities held ample stockpiles with comfortable inventory cover days, resulting in weak buying interest and quiet market trading.

Easing geopolitical tensions in the Middle East and the resumption of normal passage through the Strait of Hormuz reduced concerns over risk premiums. At the same time, weakening operational cost support further widened downside pressure on freight rates.

In addition, as market sentiment softened in the run-up to the holiday, shipowners became less firm on offers, leading to gradual rate declines, particularly for larger vessels.

During the week, all shipping routes decreased 1.8-5.1 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 3.2 yuan/t week on week to 66.3 yuan/t on June 18, while that for 60,000-70,000 DWT vessels on the same route decreased 4.1 yuan/t from a week ago to 61.4 yuan/t.

Internationally, the Baltic Dry Index (BDI), tracking rates for ships carrying dry bulk commodities, stood at 2,722 points on June 19, down 3.41% compared to 2,818 points a week ago.

As the Asian thermal coal market softened, Panamax vessels from Indonesia to China decreased $0.64/t from the previous week to $10.49/t on June 18. Supramax freight rates on the route hit $13.04/t, edging down $0.12/t compared to a week earlier, while Capesize vessels from Australia to China dived $4.86/t week on week to $17.52/t.

Looking ahead, post-holiday demand is set to stay weak, with vessel demand unlikely to pick up. Even so, a firmer BDI may offer mild support, and freight rates are expected to remain rangebound in the near term.