Coal’s Losing Steam as Supply Restarts, Virus Stifles Demand

Coal prices in China are back on the slide as local miners resume production, easing concern about tight supply and suggesting demand is a bigger wild card as the world’s top market tries to contain a coronavirus outbreak.

Futures on the Zhengzhou exchange fell for four straight days, reversing a surge at the start of the month that was fueled by an extended Lunar New Year break, transport curbs and quarantine policies that prevented mines from restarting operations.

At the urging of China’s energy regulator, producers have accelerated output resumption. About two-thirds of national capacity restarted as of Thursday. Customs officials are also expediting the clearance of imported coal to ensure sufficient supply. Now attention is shifting to demand, with consumption by power plants particularly slow to recover as industrial end-users continue to face labor and logistics constraints.

“We’ve seen evidence that coal supply is improving while there is a bigger uncertainty around demand recovery,” Feng Dongbin, chief analyst at China Coal Resource, said by phone from Shanxi province. Futures are falling and spot prices may follow suit if demand doesn’t pick up soon, he added.

Futures for May delivery on the Zhengzhou Commodity Exchange posted a fourth session of losses Monday, the longest declining streak since October. The price inched up 0.1% to 554 yuan ($79.21) a ton as of the midday trading break Tuesday, but remained near the lowest since Jan. 23, which is just before the new year break.

Spot prices at Qinhuangdao port gained 6 yuan to 576 yuan a ton last week, said China Coal Transport & Distribution Association. Australian Newcastle coal futures, which have gained 6.2% so far in February, slipped 0.2% to $70.40 a ton Monday.

While coal usage by power generators tends to pick up promptly from its holiday lows, the level this year is still relatively flat. The daily coal consumption of six major coastal utilities was at 388,000 tons Monday, about 20% below levels a year ago, according to CCTD.

See also: Traders Turn to TomTom for Clues on China’s Commodity Demand

The exceptionally slow return of workers after the holiday will have far-reaching impact on various industries, BOCI Research Ltd. analysts said in a note last week as they cut their 2020 power demand outlook. China’s power consumption may be largely flat year-on-year in the first three months before expanding at about 5% in subsequent quarters, the analysts said.

— With assistance by Jing Yang

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