China's thermal coal market in 2024: traditional seasonal factors blur

November 26

A new normal has emerged in China's thermal coal market, i.e. neither surges nor plummets as sharply as expected during traditional peak periods.

China's thermal coal market haslargely stabilized in 2024. Steady domestic production growth andrecord-breaking imports against relatively flat consumption has resulted inloose supply-demand dynamics. A new normal has emerged in China, where themarket neither surges nor plummets as sharply as expected during traditionalpeak periods.

Increased supply

Production China's coal output has stayed high so far this year. Thecountry produced 3.89 billion tonnes of raw coal over January-October, up 1.2%from a year ago, showed data from the National Bureau of Statistics.

Year-to-date outputreturned to growth in September after prolonged year-on-year declines, withfurther expansion in October. However, the year-on-year growth rate forJanuary-October reached a four-year low.

Shanxi, China's topcoal-producing province, experienced heightened pressure on coal productionfrom strict safety inspections, including addressing overcapacity and hiddenlongwall issues, alongside environmental governance efforts along the YellowRiver.

However, this has beenoffset by the persistent release of advanced capacities in Xinjiang and InnerMongolia. As operations resume in Shanxi and safety checks normalize, thecountry's coal output has shifted from negative year-on-year growth to positivefigures.

Import China's coal imports have consistently elevated, hittinghistorical highs in monthly imports from January to October. The Septemberimport alone set a new record of 47.59 million tonnes. Except for February,monthly import volumes have all exceeded 40 million tonnes. The whole-yearimport is anticipated to surpass 510 million tonnes.

Growing thermal coalimports significantly contributed to the overall increase. Chinaimported 336 million tonnes of thermal coal over January-October, 11.13% higherthan the year-ago level.

Increased global supplyalso played a part, particularly after the lifting of the ban on Australiancoal imports in early 2023. Australian coal inflows to China reached nearly 58million tonnes during the first ten months, exceeding annual volumes before theban. Meanwhile, Mongolian traders have increasingly prioritized thermal coalbusinesses, leading to a higher proportion of thermal coal in their exports toChina.

International thermal coalprices have stabilized so far, with limited fluctuations observed. Thecompetitive seaborne market with sufficient supply limited significantincreases in international prices, giving imported coal a pricing advantageover domestic options and boosting demand among Chinese buyers.

Affected by extreme summerheat and the northward subtropical anticyclone entering autumn, southern Chinaexperienced prolonged high temperatures. As a result, coal consumption at powerplants was significantly higher than the same period in previous years.

Meanwhile, stimulated byfavorable macroeconomic policies, the non-power sectors increased on-demandpurchases, keeping imported coal arrivals high at Chinese ports.

Moderate demand

China's thermal coal demandhas shown a relatively subdued trend. While overall consumption rose comparedto 2023, it lagged behind the supply expansion, resulting in a notable supplysurplus.

Sxcoal's data showed thatthe effective supply of thermal coal in China reached 3.15 billion tonnesduring the first nine months, rising 2.19% from a year ago. Total demand overthe same period grew 2.82% year on year to 3.06 billion tonnes. This indicateda nearly 100 million tonnes of surplus.

China's economy hasgradually recovered this year, contributing to an overall stable demand forcoal, yet still with fluctuations.

The power sector,traditionally the largest consumer of thermal coal, has experienced a declinein its growth of coal burns. This is partly attributed to higher-than-expectedhydropower generation and the rapid adoption of renewable energy sources, whichalign with the country's broader eco-friendly efforts.

Non-power sectors, such ascement and construction materials, have presented some resilience, benefitingfrom positive macroeconomic policies and seasonal demand spikes in Septemberand October. However, the chemical industry, especially methanol and ureasectors, has struggled with retreated prices and waned downstream demand,tempering overall demand gains.

As winter approaches,increased heating demand and declining hydropower output, together with thegradual effect of macroeconomic positives, are expected to slightly boost coaldemand throughout 2024
.Outlook

As China approaches thefinal year of its 14th "Five-Year Plan" (2021-2025), there is acautiously optimistic outlook for the thermal coal market. The expectedeconomic recovery and the implementation of a set of policies are likely tostrengthen coal consumption in the metallurgical, construction materials,chemical, and power sectors.

However, questions remain regarding the sustainability ofcoal imports in maintaining the upward trend, the impact of extreme weather onthermal coal demand, and whether the phenomenon of "not-so-busy peakseasons and not-so-quiet off-seasons" is likely to continue. These issuesmerit further investigation.

Source: SXCoal