China's seaborne thermal coal demand seen set to rebound on summer stockpiling, rail maintenance

China's seaborne coal demand is likely to increase in the near term as domestic buyers look to stock up ahead of summer and railway maintenance that is expected to hamper the supply chain in April, market sources told S&P Global Commodity Insights March 23.

The expectations of a rise in thermal coal demand come at a time when domestic production has been impacted by COVID-induced lockdowns and movement restrictions. More than 20 provinces and cities have imposed travel bans and lockdowns as the number of positive cases surged.

Sources said railway line maintenance scheduled to begin April 8 may lead to supplies from Qinhuangdao port being affected during the month. Therefore, buyers want to stock up before the maintenance begins.

The announcement of the maintenance comes around the same time as buyers traditionally look to increase their stockpiles ahead of summer, when demand for cooling increases, sources said.

"Summer is coming soon so stockpiles would be needed, and if they are not having enough domestic coal production, that demand should come to the import market," an Indonesia-based producer said.

Market sources said the rise in COVID-19 cases and the restrictions in place to contain the spread have affected production capacity, with restrictions imposed on the number of workers allowed at mine sites and the increased testing delaying transportation and other logistics.

The price of Indonesian 4,200 kcal/kg GAR has risen to $108.05/mt FOB March 23 from $65.45/mt FOB on Jan. 3, S&P Global data showed.

While the period witnessed firm demand from buyers in Japan and South Korea, as well as from Europe amid concerns of gas supply disruptions following Russia's invasion of Ukraine, China opted to stay out of the market, waiting for prices to soften.

Spot offers for Qinhuangdao 5,500 kcal/kg NAR were at Yuan 1,700/mt [$266.65/mt] March 23, sources said.

China's top economic body National Development and Reform Commission has said that it believes the stable price is Yuan 770/mt. However, production levels so far have been unable to match the requirements to meet this price cap guidance, sources said.

China produced 690 million mt coal over January-February, up around 10% year on year, National Bureau of Statistics data showed. The country imported 35.39 million mt over the same period, down 14% on the year.

A South Korea-based source said that city lockdowns and lower factory output in China could be a factor for lower demand, but buyers may want to stockpile ahead of the railway line repairs.