Singapore — China's seaborne thermal coal market participants painted a bleak picture for the demand outlook for the rest of the year as the country tightens its restrictions on imports.
The issues surrounding the policy changes surfaced during the 6th Global Thermal Coal Resource and Market Summit 2018 organized by Fenwei Energy in Beijing this week.
China's authorities have imposed stricter import controls on seaborne thermal coal, stopping all imports with immediate effect for the rest of the year, S&P Global Platts reported.
A Chinese power utility source said that the import policies had posed a challenge to the plant as it had created too much uncertainties in their procurement plan for imported coal.
"We've to adjust our strategies quickly in response to the policies," the source added.
The strategies include purchasing from the domestic market as well as hedging on the futures market, according to the source.
The source also told S&P Global Platts that their stockpiles are able to last for about 30 days of coal burn and it is a similar situation faced by other power plants as well.
"The weather isn't that cold yet, and with the ongoing trade war, industrial power consumption is dropping too, so our outlook for the next few months is pretty bearish," the source said.
Another source said that Q4 thermal coal import volume was likely to decline year on year due to the restrictions, but "some power plants would likely receive different treatment depending on their circumstances."
"Some end-users might be able to seek ways to negotiate for shipment approval. If the weather gets colder, the authorities would certainly give way as they can't let the people freeze to death," a trader said.
Sources said that the market was expected to remain volatile in the coming months.
"Prices of import coal are very low now, so it's even unlikely for the government to open up the market to all. Everyone will flock to the seaborne market if they relax the grip now," a China-based trader said.
SPOT DOMESTIC PRICES DECLINE
Chinese domestic futures prices have been volatile this week due to the uncertainties surrounding the import policies.
The price of January contract for domestic 5,500 kcal/kg NAR shot up to the day's high of about Yuan 628/mt on Wednesday afternoon, up from Yuan 610/mt Tuesday evening, before paring gains to trade at Yuan 613/mt Thursday.
Spot prices of 5,500 kcal/kg NAR and 5,000 kcal/kg NAR, however, did not react positively to the news of tighter import restrictions.
The price of PCC 1 - FOB Qinhuangdao 5,500 kcal/kg NAR - was assessed at Yuan 635/mt Thursday and 5,000 kcal/kg NAR price was assessed at Yuan 575/mt FOB Qinhuangdao, both down Yuan 5/mt from Wednesday, Platts data showed.
Several sources told Platts that under usual circumstances, domestic prices would likely rise as tighter import quotas would mean better demand for domestic material.
"Trading volume is still low, this shows how weak the demand is right now," a market player said.
Another market source, however, said the decrease in domestic prices could just be temporary as the effect of the policy changes will only kick in the later weeks.
"Everyone is now speculating, it is yet to be seen how the tighter restrictions will impact on the market," the source added.
PRICES TO RETURN TO A REASONABLE LEVEL
In his opening remarks at the Fenwei conference, Lu Yanchun from Price Supervision Bureau of China's National Development and Reform Commission stressed that the government will ensure that "prices return to a reasonable level" amid weaker economic growth.
"Since mid-October, Qinhuangdao thermal coal spot prices had gone down by about Yuan 40/mt, this is a good start to the peak season," he said.
"Now that the northern region is entering the heating season, it's very important to make sure that coal supply and coal prices remain steady," he added.
The price of PCC 1 hovered about Yuan 670/mt FOB mark in mid-October, according to Platts data.
-- Hui Min Lee, email@example.com
-- Edited by Elizabeth Thang, firstname.lastname@example.org