China's domestic coal prices soften amid NDRC's stable price guidance

China's domestic coal prices edged lower after a guidance by top economic body National Development Reform Commission, or NDRC, which stated that domestic coal prices will be considered stable below Yuan 900/mt [$141.59] at ports, sources told S&P Global Platts Feb. 11.

Sources said major coal producers in China are being asked to sell the fuel below the market price now. Prices of Qinhuangdao 5,500 kcal/kg NAR were heard at Yuan 1,120/mt FOB [$176.08] Feb. 11 against Yuan 1,135/mt FOB heard Feb. 9, according to sources. The price of 5,000 kcal/kg NAR was heard at Yuan 995/mt FOB against Yuan 1,005/mt FOB heard Feb. 9.

Meanwhile, Chinese traders expect demand for Indonesian coal to weaken if the guidance by NDRC is followed, sources said. "It will affect Indonesian coal buying interest first if Chinese domestic coal prices fall below Yuan 900/mt," a Chinese trader said.

However, the challenge is to lift domestic production to maintain sufficient stockpiles at power plants and stability in prices, sources said.

"Given the 20% coal price rally YTD (year-to-date), we think the Chinese government will likely enforce 'supply boost' + 'price control' as a combined measure to cool down coal prices from the current elevated level," a note by Morgan Stanley on Feb. 10 said.

NDRC guidance on prices

According to market sources, NDRC in a meeting Feb. 10 reiterated its view that domestic coal prices are stable below Yuan 900/mt [$141.59] at ports and guided the sellers to sell below the level.

Traders said that the officials want to ensure stable coal supply and prices during the Winter Olympics to build a foundation for economic growth in January-March this year and said there is a need to increase coal supply quickly.

The NDRC noted that efforts to raise output earlier led to a daily production of 12 million mt.

According to China-based market sources, the government believes that coal stockpiles at power plants are at a record-high level of over 160 million mt.

Earlier, NDRC had capped the port price of 5,500 kcal/kg NAR at Yuan 1,000/mt ($157.32/mt) FOB following a recent price surge, Platts reported Jan. 28.

The note said that domestic coal price at pit head was stable below Yuan 700/mt, unchanged from the level announced Jan. 28.

Sources said that the NDRC was especially observing coal prices in mines of Shaanxi, Yanchang Petroleum, China Coal, Shaanxi Coal, Fugu, Matai Trench, Jinlaoyuan and Erlin Rabbit.

NDRC could not be immediately reached for a comment.

Indonesian supply tightness

Chinese domestic coal prices had risen sharply after Indonesia imposed a ban on coal exports in January. Even though the ban was eased by Jan. 21, producers have been focusing on fulfilling backlogs, leading to supply tightness for Indonesian coal.

"They (Chinese traders) want coal but they are not showing it because the market is already hot and if they enter now, the prices will shoot up even further. We don't expect Indonesian coal prices to be impacted by NDRC in the short term," an Indonesian trader said.

The price of 5,000 kcal/kg GAR has risen from $93/mt FOB Dec. 31 to $116.05/mt Feb. 10, Platts data showed.

Market sources said that stockpiles at Qinhuangdao stood at 5.01 million mt Feb. 11 against 4.01 million mt Jan. 28, just before the Lunar New Year holidays. The stockpiles at the port stood at 4.74 million mt Dec. 31.