Coal Prices Driven Up 8 Weeks Running by Tight Supply and Speculation

China’s temporary price intervention on power coal is not working. Tight supply and speculation have forced up power coal prices for 8 straight weeks.

Coal prices in Qinhuangdao Port in Hebei Province rose from June 23 by 40 to 50 yuan per ton to a new high on June 30, indicating shortages still exist.

Qinhuangdao has at present a stock of about 6 million tons, and transfer stations also have significant stocks, so the coal supply should not seem tight at all. But analysts say most of these stocks have low calorific value, some as low as about 3000 Kcal per ton, and good power coal with high calorific value is still short.

Not only has the price for good power coal, with calorific value above 5500 Kcal per ton, risen sharply, but common blended coal with 4000 kcal per ton also saw a price hike, of 400 yuan per ton, the previous week. "The possibility of speculation can’t be ruled out. Since coal prices are expected to continue to increase due to tight supply, some coal dealers hoard coal and wait for higher prices, which will further tighten supply," said PingAn Securities analyst Chen Liang.

 "This round’s coal price rise, starting from China and spreading to Australia, has changed from a spiral to unilateral increase," said Chen Liang. Since May, prices in both China and Australia have increased sharply. The Australian BJ spot price hit $160 per ton, while domestic prices hit new highs in the past two months.

China’s coal prices fell back a bit in April. An increase in China’s coal production helped. A similar fallback occurred in Australia shortly after that. China’s coal production for the first three months, first four months, and first five months this year was 90 million tons, 227.7 million tons, 280 million tons, respectively. Coal production in April alone reached 137.7 million tons, a peak in recent times.

But the international coal supply is still tight, as Australia has not fully restored its coal production, South Africa’s electricity production is increasing, Indonesia is building new power plants, and Vietnam has reduced its coal exports. 

Meanwhile, any international crude oil price increase will also lift coal prices.

Informed analysts believe price intervention, far from stabilizing the market, will actually reduce the supply of power coal, leading to even greater demand and pushing ever higher the coal spot price.