The Chinese government's move to set a ceiling for domestic coal prices at Qinhuangdao Port was unlikely to have a significant impact on coal supply-demand fundamentals, however efforts to allocate more railway capacity to transport thermal coal amid strong winter demand could have some impact, market sources said Tuesday.
China's Qinhuangdao Port was directed by the country's National Development and Reform Commission on Monday not to allow domestic 5,500 Kcal/kg NAR coal entering the port to trade above Yuan 750/mt FOB, effective immediately.
NDRC was also reportedly keeping stringent tabs on all deals at the port as it seeks to reign in rising domestic thermal coal prices.
The price of FOB Qinhuangdao 5,500 kcal/kg NAR coal has surged almost 30% in the past year to be assessed at Yuan 770/mt Monday, S&P Global Platts data showed, driven by strong demand and supply tightness in several producing regions.
The government was also this week giving thermal coal priority over coking coal on railways in a bid to ease supply bottlenecks during a severe cold snap, a China-based trader said.
"There are logistics issues that are hindering supply from keeping up with demand and that's why [coal] prices have gone up," he added.
However Luzheng Future coal analyst Pu Chengzhu said the price ceiling set by the government will not impact supply-demand fundamentals and market conditions significantly, although near-term sentiment and confidence could be shaken slightly.
Supply remains tight and stockpiles at utilities are low, he said, adding domestic coal prices may hover around the ceiling level for another one or two weeks, "but as Chinese Lunar New Year is approaching, demand for coal has a high chance of dropping, especially during the holidays."
He noted coal supply in China could fully meet demand once the peak winter demand period was over. Bottlenecks in land transportation have also impacted supply at present, he said.
Qinhuangdao Port data showed coal consumption at six major coastal utilities dropped as much as 25% during Lunar New Year holidays in 2017 compared with the pre- and post-holiday periods.
After the ceiling price was announced, major domestic miner China Coal was said to have lowered its spot coal price and was not looking to raise it before the Congress meeting in March, sources said.
The producer was also said to have plans to increase production capacity at its high quality coal mine and improve coordination with railways to streamline inland transportation and supply.
