China's domestic thermal coal prices surged in the week ending October 17 due to rainfall-disrupted mining and transportation, and miners' anticipation of strong winter demand. Elevated mine-mouth prices provided a solid cost support to the portside prices, while restrained Daqin railway shipments capped port inventory buildups, adding another layer of support.

The seaborne import market tracked domestic prices higher, as bullish domestic sentiment, together with seaborne freight rate surges, pushed traders to raise bidding prices to utility tenders and overseas miners to stand firm on pricing.

Sxcoal CCI Index

On October 17, the CCI index for 5,500 Kcal/kg NAR domestic spot coal stood at 745 yuan/t FOB with VAT northern China port with VAT, rising 37 yuan/t week on week. The CCI index for 5,000 Kcal/kg NAR domestic coal was up 39 yuan/t from a week earlier to 655 yuan/t.

On the same day, the CCI 5500 Import index stood at $92.0/t, CFR southern China port, $5/t compared with the previous week. The CCI 4700 Import index was up $2.8/t to $72.5/t, while the CCI 3800 Import index climbed $2.3/t to $56.3/t.

Weekly Dynamics

Production areas Thermal coal prices rose further last week due to regional supply constraints and anticipated winter demand. Production and sales slowed at a few mines due to continued rainfall and the upcoming important political conference. However, the overall production still slightly gained following resumption of some other mines after completing maintenance and longwall face relocation.

Sxcoal's survey of 160 thermal coal mines showed the overall capacity utilization gained slightly to 91% during the week ending October 15, rebounding 1.16 percentage points from the previous week. Weekly output from these mines gained 1.29% week on week to 16.58 million tonnes. Their coal stocks dropped by 2.93% on the week to 4.11 million tonnes.

The demand side saw steady purchases from metallurgical and chemical plants. Some miners reported a rebound in demand from heating companies from northeastern and northern regions, also boosting coal mine sales.

Additionally, sentiment was further buoyed by a leading miner's frequent upward adjustments in its buy prices of third-party coal and price hikes at portside markets, attracting speculative purchases.

During the monitoring period over October 9-15, 62 mines raised prices by 27 yuan/t averagely, up from three mines hiking prices by 8.3 yuan/t a week ago, while 13 mines cut prices by 14.6 yuan/t, compared with 32 mines lowering prices by 21.3 yuan/t. The remaining 85 mines kept prices flat.

On October 17, Sxcoal assessed Yulin 5,800 Kcal/kg NAR thermal coal at 613 yuan/t, mine-mouth with VAT, rising 46 yuan/t from the preceding week; Ordos 5,500 Kcal/kg NAR coal climbed 51 yuan/t to 555 yuan/t; and Shanxi Datong 5,500 Kcal/kg NAR coal was assessed at 625 yuan/t, climbing 50 yuan/t week on week.

Miners said that the near-term prices are prone to increase further than decline, given the gradual release of winter restocking needs.

Coal deliveries through Daqin railway, a major transport artery connecting production areas to northern ports, hovered at around 1 million tonnes after it started autumn maintenance from October 7. Daily shipments averaged 0.94 million tonnes during the week ended October 17, dropping 10.5% week on week and compared to the full capacity of around 1.25 million tonnes.

China Railway Hohhot Group, which supervises the rail networks in central and western Inner Mongolia, approved 26 trains to transport coal each day on average last week, rising five trains from a week earlier.

Portside market Thermal coal prices gained robust momentum at China's northern ports last week, as still tight availability of premium low-sulfur grades and elevated offers at production areas prompted sellers to keep adjusting prices higher.

With Daqin railway daily shipments capped during the ongoing maintenance and port operations resuming to normal from earlier rainfall-induced suspension, portside stocks shifted to decline again after buildups during holidays.

Coal inventories at Qinhuangdao, Jingtang, Caofeidian, and Huanghua ports in northern China totaled 23.80 million tonnes on October 17, decreasing 6.65% week on week yet rising 4.86% on the month. The volume was also 3.14% lower than the year-ago level, Sxcoal's data showed.

However, power utilities stayed generally cautious on buying at elevated price levels and intended to press prices down, yet sellers maintained a firm pricing stance, leading to continued low liquidity. Some power plants, holding low stocks after misjudging the market with inactive replenishment pre-holiday, reportedly restocked at high price levels.

As prices climbed consistently, participants grew increasingly cautious. Sellers showed a greater inclination to lock in profits, while buyers still adopted a wait-and-see approach. Most traders expect a slight price dip post pre-winter restocking, but any drop will likely be minimal due to strong mine-mouth prices and all-in delivered costs.

Coal burns at power plants of inland provinces, which mainly rely on supply from production areas, rebounded by 0.9% week on week yet fell 2.4% on the month to 3.21 million tonnes on October 15. Their coal stocks dipped by 0.3% compared with the week-ago level yet gained 6.3% on the month, data showed.

Some participants saw potential support from the recently weakened hydropower power generation, expecting demand for coal-fired power to strengthen as northern China enters the heating season.

Sxcoal's data showed that water outflow through the Three Gorges dam, a key indicator of China's hydropower generation, stood at 9,970 cu.m/s on October 17, falling by 54.5% from the week-ago level and down 61.5% from the preceding month.

Import market Imported thermal coal prices remained on the upward trend. China's domestic price increases, along with rising international freight rates, drove up the delivered cost of imported coal to South China, pushing bidding prices to utility tenders higher.

Freight costs for Panamax vessels carrying coal from South Kalimantan to South China have climbed to $8.5-9/t, up by around $1/t from the end of September, according to trader sources.

To offset elevated costs, Chinese traders raised their offers to domestic end users. Offers for Panamax cargoes of the most-popular 3,800 Kcal/kg NAR coal rose to around $48/t FOB. Transactions were heard up to $48.25/t FOB, and even settlement levels for inferior quality same-CV grades were heard at $47/t for the lowest, sources told Sxcoal.

On October 17, Sxcoal assessed the tender-winning prices for 3,800 Kcal/kg NAR coal at 450 yuan/t CFR South China with VAT, up by 20 yuan/t from the preceding week.

Imported coal still held a price advantage over domestic equivalents, leading to active tenders from end users. Indonesian miners also faced no significant sales pressure and maintained a firm pricing stance. However, rising freight rates have somewhat compressed the room for further increases in FOB coal prices, with growing resistance from end users to further price hikes.

Sxcoal's calculation showed on October 17 that Indonesian 3,800 Kcal/kg NAR coal enjoyed a delivered-to-South China advantage of 57.87 yuan/t against domestic 4,500 Kcal/kg NAR coal on a CV-adjusted basis. That spread gained 21.17 yuan/t week on week and 21.89 yuan/t on the month.

For the high-CV segment, Australian 5,500 Kcal/kg NAR coal accelerated the rise, yet transactions were still restrained by a wide bid-ask spread and wait-and-see stance among buyers.

Forecast

China's thermal coal prices are anticipated to remain buoyed in the near term, with expected support from growing winter replenishment as the northern regions enter heating season and tightened inspections during a October 20-23 event. However, the pace of rise is likely to moderate, considering resistance to price hikes among buyers. The imported market may continue to strengthen, backed by widened price advantage, yet the fast-rising freight costs may curb the overall upward space.