Fourth quarter coal price will narrowly oscillate

Recent forecasts suggest that with China's macroeconomic stability continuing into the fourth quarter, the production of energy-intensive goods like electricity, steel, and cement is anticipated to stabilize and grow. This development is expected to result in a steady increase in coal demand. The third quarter saw a gradual stabilization in economic growth, indicated by improvements in fixed asset investments, consumer goods sales, and industrial output. Industry experts believe that while the coal sector may no longer experience its golden decade, it is unlikely to enter a downturn soon. Oversupply issues are likely to persist. In the fourth quarter, China's thermal coal demand is projected to rise steadily. Winter is typically a peak period for electricity and coal usage, driving higher demand. Additionally, hydroelectric power generation tends to decline in winter, further boosting the need for thermal power and coal. Industrial production is also expected to stabilize and pick up, leading to increased electricity consumption, particularly in heavy industries. This uptick will support higher coal demand for power generation. Cement production is set to improve due to rising fixed asset investments, which will also stimulate demand for fuel and steam coal. Steel production, which dipped in the third quarter, has seen a significant rebound since mid-September. Steel prices have surged over 10% in just a few weeks, driven by policy stimuli and increased demand for steel products. This trend is expected to continue, propelling crude steel output upwards and boosting demand for metallurgical coal, including coking coal and jet coal. Smokeless lump coal demand is also anticipated to rise steadily. Despite the fourth quarter marking the off-season for domestic urea demand, the upcoming export season could mitigate any potential dip in urea market demand. Furthermore, the recent correction in anthracite prices suggests that coal demand remains resilient, and nitrogen fertilizer companies are likely to maintain or even increase their coal purchases. Looking ahead, China's coal production is expected to gradually improve in the fourth quarter, supported by sufficient capacity. International coal supplies remain loose, keeping global prices low, which should encourage a rise in Chinese coal imports after a decline. However, challenges persist. Declining coal prices and sluggish sales have led some producers to halt operations, exacerbated by stricter safety regulations. Accumulated inventories are now falling, allowing some mines to resume operations. Major state-owned enterprises, having invested heavily in new mines and mergers, are keen to maintain production levels as market conditions improve. Domestic coal prices are stabilizing, encouraging traders to anticipate market recovery. Coal imports are expected to stabilize as power plants prepare for winter demand. The Daqin Railway maintenance and provincial production restrictions have impacted domestic supply, prompting some companies in eastern and southern regions to import more coal. Despite these developments, coal price increases will be limited. While the macroeconomic outlook is stable, global challenges like the European debt crisis persist, constraining export growth. The pace of domestic economic restructuring is accelerating, making it harder for local governments to fund infrastructure projects. Consequently, coal demand may stabilize and recover, but not at a rapid pace. High coal inventories across major ports and power plants also weigh on price recovery. Ports like Ningbo, Guangzhou, and Fangcheng have record-high stock levels, while national power plant reserves exceed 90 million tons. Downstream companies' purchasing enthusiasm is unlikely to surge, and domestic coal prices may face downward pressure from cheaper imports. Since September, coal prices have stabilized from mines to ports. Supply constraints have helped bolster prices despite weak demand. A modest rise is possible during the winter peak season, contingent on macroeconomic stability and continued production restrictions. However, excess supply means significant price hikes are unlikely. Historically, coal prices tend to rebound after summer peaks, often stabilizing or slightly increasing in the fourth quarter. Industry insiders believe that China's coal surplus persists, though prices have reached a floor. Expectations point toward a slight increase followed by narrow-range fluctuations in the coming months.