[Ferro-Alloys.com] China's domestic thermal coal prices have risen sharply since September to reach unusually high levels for the winter season, boosted by a stronger economy, colder winter weather and production cuts.

 

Domestic thermal coal prices rose sharply over the last four months of 2020. Early restocking for winter pushed prices for NAR 5,500 kcal/kg coal to an average of $85.05/t and $88.80/t fob Qinhuangdao in September and October, respectively, up by $4.78/t and $3.75/t month on month. Prices gained even more momentum in November and December, averaging $93.38/t and $112.34/t, according to Argus weekly assessments.

 

The December price was the highest monthly average since February 2018. But prices over the whole of 2020 averaged $83.53/t, weaker than the previous two years, as the impact of the Covid-19 pandemic weighed heavily on prices in the spring.

 

Prices recovered sharply in the latter months of the year on the back of higher household power use with the onset of winter and an economic recovery. China's industrial output rebounded from year-on-year declines in the first three months of 2020 to record growth of nearly 4pc in April against the same month in 2019, according to the national bureau of statistics (NBS). Industrial output growth accelerated in August-November to exceed even growth levels a year earlier, with November's industrial output rising by 7pc on the year, the highest increase since March 2019.

 

Industrial stimulus

The rapid industrial growth stimulated power demand to an unusual degree. Monthly power use by the industrial sector increased by 7.7-9.9pc in August-November last year, well above year-on-year growth of 3.4-4.3pc in the same months of 2019. The sector's power use hit 467.9TWh in November 2020, the second highest level on record behind only 480.4TWh in August 2020.

 

Stronger hydropower output curbed the increase in thermal power demand over the summer months last year. But November's thermal power output, which is mainly based on coal, hit 470.1TWh — the second-highest level since December 2019. The strong output also resulted in a sharp increase in power plant demand for coal.

 

December thermal power data will not be available until mid-January. But overall power generation last month rose by 10pc on the year, China's national economic planning agency the NDRC said on 31 December. This is likely to have raised coal consumption for power generation.

 

The colder-than-usual winter was also a big driver behind China's unusually robust coal and power demand. A cold snap hit many parts of the country on 28 December, prompting the central meteorological bureau to issue its first code orange warning for the year. Temperatures in 20 locations across the country subsequently dropped to the lowest levels ever recorded in the month of December. China uses a four-tier colour code warning system, with red being the most serious, followed by orange, yellow and blue

 

The sharp and relentless climb in domestic coal prices over the last four months of 2020 helped to push up competing seaborne coal prices for delivery to China. The price of Indonesian NAR 3,800 kcal/kg (GAR 4,200) coal averaged $38.76/t fob in December, the highest monthly average since August 2018. And Russian NAR 5,500 kcal/kg coal averaged $66.52/t fob Vostochny in December, the highest monthly average since May 2019, according to Argus assessments. The strength in prices came despite Beijing allocating additional import quotas to cope with severe domestic coal shortages in late November.