At the beginning of June 28, the coal sector weakened sharply, leading the two cities to fall. As of press release, Jinkong coal (601001), Haohua energy (601101) and Shanmei International (600546) fell by the limit, while Huaibei Mining (600985), Lanhua Kechuang, Lu’an Huanneng (601699) and Shaanxi black cat (601015) fell by more than 8%.
In the futures market, coal futures fell sharply, the main contract of steam coal futures fell by more than 6%, coke and coking coal fell by more than 3%.
On the news side, on June 27, the national development and Reform Commission said that with the growth of hydropower and solar power generation in summer, as well as the increase of coal production and imports, the contradiction between supply and demand of coal will tend to ease. It is expected that the coal price will enter a downward channel in July, and the price will drop significantly.
According to the situation of imported coal orders, July and August will be the peak period for the arrival of imported coal, and the coal supply will be further effectively supplemented.
Institutions expect to continue to boom
Since the beginning of this year, the price of coal has been rising all the way. After a short correction in the middle of May, it has risen significantly since the beginning of June. Market participants generally believe that tightening supervision, increasing demand and rising import costs are the main factors supporting the current round of coal price rise.
With the arrival of the peak power consumption in summer, the demand for coal is further increasing.
On the one hand, the demand for coal is strong; on the other hand, the overall coal supply situation is tight this year.
In the first half of this year, China’s economy continued to recover, industrial production was booming, and the demand for electricity continued to rise. According to the data of the National Bureau of statistics, China’s raw coal accumulated a year-on-year growth of 8.8% from January to may, but the thermal power generation increased by 16% from January to May.
On the supply side, under the combined action of various factors, the era of effective capacity shortage has opened.
First, the frequent security and environmental protection in the main producing areas affects the output. For some overproduction behaviors in the industry, the marginal cost of overproduction behavior increases greatly under the background of increasingly prominent production safety problems.
Second, due to the impact of 20 years of retrospection, Inner Mongolia has been issuing coal management tickets in strict accordance with the approved production capacity, and the production capacity of the overproduced part has not been released, so that after the end of supply guarantee at the end of February, the production capacity has dropped significantly.
The eastern mining area, which accounts for 25% of the country’s production capacity, has entered the stage of capacity contraction. Due to the lack of capital expenditure in the industry, new mines will be more scarce during the “14th five year plan” period. According to the prediction of China Coal Association, the annual growth rate of domestic coal production in the next five years is about 40 million tons (about 1%)
Third, the price of imported coal is on the high side, the price advantage of imported coal is small, and even the price of imported coal is inversely linked with that of domestic coal, which makes the quantity of imported coal from April to may on the low side.
Since 2021, under the influence of tight coal supply and demand in the international market, further deterioration of Sino Australian relations, and further narrowing of the price gap between domestic and foreign coal, the import volume from January to may 2021 will be 111 million tons, a year-on-year decrease of 25.2%.
In recent years, the output of Indonesian coal enterprises has increased, but the consumption in Southeast Asia and other places continues to grow. It is expected that the increment of Indonesian coal will be consumed, and the supplementary effect of imported coal will decline.
Fourth, the shortage of coal supply in 2020 leads to excessive consumption of social inventory, low intermediate and terminal inventory base, and continuous low inventory.
Fifth, the high demand for coal and electricity brought about by the rise of the overall industrial products has exacerbated the tense situation of coal supply.
The result of the imbalance between supply and demand is the shortage of inventory, which is quite different from the situation of high inventory before the peak season in previous years. At present, the inventory of each link is on the low side this year.
According to media reports, the current coal supply exceeds demand, and the coal inventory has also dropped to the lowest level in recent years. Industry insiders pointed out that this year’s overall coal supply is in a tight pattern, but it is expected that after mid July, some upstream production capacity for shutdown and maintenance will be gradually released, which will play a certain role in the stability of the coal market.
Reprint indicated source：Shine Trader Limited Live information