Coal prices dive as stockpiles surge

CHINESE consumers of thermal coal have been defaulting on their contracts, prompting prices to fall as stockpiles rise, experts have concluded.
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Alison Middleton

Analysts have found either weak demand from China for the raw materials is behind the cancellations, or consumers are defaulting to take advantage of falling prices and rebook at lower costs.

Chinese demand for coal, which fuels three quarters of the nation’s power plants, has slowed as the economy cools and curbs electricity consumption.

Financial Times commodities editor Javier Blas said the reason behind the cancellations was a hotly debated topic in the physical commodities market.

“The market has experienced both hypotheses at work: after the start of the global financial crisis of 2008, Chinese buyers defaulted en masse as demand vanished,” he said.

“But in 2010, when fears about the eurozone sent prices down, Chinese customers defaulted on their shipments, only to rebook their cargoes shortly after at much lower prices. Commodities traders say both theories are probably at play.

“Chinese commodities demand is lacklustre and inventories are indeed high. Electricity production, a proxy for thermal coal needs, rose only 0.7 per cent last month, a large slowdown from double digit figures in 2011 and earlier this year.”

Blas added: “Moreover, thermal coal stockpiles at Chinese utilities rose last week to the equivalent of 26 days of consumption, up 62.5 per cent from 16 days in the same period of a year ago, according to the China Coal Transport and Distribution Association.”

Data from the CCTDA showed China’s power-station coal price fell for the third week as stockpiles at Qinhuangdao port rose the most in six months on slowing demand.

Coal with an energy value of 5500 kilocalories per kilogram slid 0.6% to a range of 765 yuan ($121) to 775 yuan a metric ton as of Monday compared with a week earlier.

Bloomberg said inventories at the port, which delivers half the nation’s seaborne supplies, rose 15% to 7.43 million tons, the biggest percentage increase since November 20.

And ANZ said international prices would stay under pressure until seasonal demand increases next quarter in China.

The country’s power generation rose 0.7% in April from a year earlier, according to the National Bureau of Statistics. That was down from 7.2% in March and the slowest pace of growth in three years for a non-Lunar new year month.

Coal stockpiles at the nation’s biggest utilities rose to the equivalent of 26 days of consumption as of May 20, compared with 16 days a year earlier, according to the CCTDA, Bloomberg said.

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