China coal price rise may be capped

The daily consumption of coal from power plants is increasing with temperature getting higher in China. Coal price bottomed out and rebounded in tandem.

In the summer of 2022, the heat wave swept over East China, drought occurred in Southwest China, and Northwest regions were hit by heavy rains, which led to surge in coal price. Then, what could happen in the summer of 2023? It is currently expected that peak consumption could be the driving force to coal price.

However, the upward space for coal price could be limited. Firstly, stocks at power plants and traders are high, which could not be consumed in the short term. Secondly, China domestic coal production and imports are large, and the imports could be spurred by price pullback of Australian and Indonesian coal. Thirdly, demand for coal from non-power plant sectors is weak, subdued by soft real estate market and slowdown in exports.

According to National Statistics Bureau, China raw coal production keeps stable and imports sustain growth at high pace. In May, raw coal output reached 390 million tons, up 4.2% on year, compared to the growth of 4.5% in Apr. In Jan-May, the output totaled 1.91 billion tons, up 4.8% on year.

According to China customs data, in Jan-May 2023, the country imported 182.059 million tons of coal, up 89.6% on year. The imports reached 39.584 million tons in May, up 92.6% on year, compared to the growth of 72.7% in Apr.

It is noteworthy that the El Nino may occur during the summer or autumn of 2023. Market participants watch closely to whether there will be higher-than-expected temperature, extreme drought, or unusual rains caused by the El Nino. In Jul-Aug 2023, the duration and intensity of heat wave across China is unlikely to exceed that in 2022. In addition, with supplement of power supply from hydro-power plants in Southwest China, coal supply may not be tight this summer.