Fourth quarter coal price will narrowly oscillate

Recent forecasts suggest that with China's macroeconomic conditions stabilizing, the production of energy-intensive goods like electricity, steel, and cement is anticipated to stabilize and grow in the final quarter of the year. This development is expected to drive a consistent rise in coal demand. In the third quarter, the economy exhibited steady growth, showing clear signs of stabilization as evidenced by improvements in fixed asset investment, consumer goods sales, and industrial added value. Industry experts agree that despite the past decade of prosperity in the coal sector, the industry is unlikely to enter a downturn soon. Oversupply remains a persistent issue. Looking ahead to the fourth quarter, China’s thermal coal demand is projected to increase steadily. On one hand, winter marks the peak season for coal usage and electricity demand, which naturally boosts coal consumption. Additionally, hydroelectric power output tends to decrease during this period, further increasing reliance on thermal power. On the other hand, industrial production is expected to stabilize and expand, driving up electricity consumption, particularly in heavy industries. This will in turn stimulate the demand for coal for power generation. Furthermore, increased investments in fixed assets are likely to support the cement market, leading to higher cement production and boosting the demand for both fuel and steam coal. Steel production has seen a decline in the third quarter, but thanks to policy incentives and a rebound in steel prices, production is expected to recover post-October. This will likely result in a steady rise in the demand for metallurgical coal such as coking coal and coal jet. The demand for smokeless lump coal is also expected to grow steadily. Although domestic agricultural urea enters its off-season in the fourth quarter, the implementation of peak-season tariffs on urea exports is expected to offset this, maintaining steady demand for coal in the nitrogen fertilizer sector. Market recovery and output increases are anticipated in the fourth quarter. With sufficient production capacity, coal production is expected to improve gradually. Internationally, loose supply-demand dynamics and low coal prices are likely to halt the decline in coal imports, potentially leading to an uptick. However, lower coal prices and challenges in sales have resulted in some mines halting operations due to mounting backlogs and losses. Local authorities have also mandated shutdowns for safety inspections and upgrades. The government’s focus on safe production has led to stricter regulations, affecting several operational mines. As early-stage coal inventories deplete, some previously closed mines may restart operations. Large state-owned coal firms, having invested heavily in new mines and mergers, now face the challenge of maintaining normal operations amidst market fluctuations. As stability returns, coal production should see a gradual rebound. Domestic coal price stabilization is encouraging traders and could lead to steady coal imports. Since September, Chinese power plants have been stocking up for the winter. However, disruptions in the Daqin Railway and production restrictions in key provinces have impacted domestic supply. Consequently, eastern and southern coal companies may increase imports to ensure supply continuity. Traders might also capitalize on winter storage opportunities, further driving coal imports. Despite these trends, coal prices are expected to remain within a narrow range of fluctuations. Since early November, thermal coal prices have seen a modest increase for nine consecutive weeks, reflecting steady demand and pricing. Analysts note that while the macroeconomic slowdown has halted, global uncertainties persist, limiting coal price growth potential in the near term. High stock levels at major ports and power plants also constrain price recovery. Ports such as Ningbo, Guangzhou, and Fangcheng have record-high coal stocks, while national power plant reserves exceed 90 million tons. Downstream companies show limited purchasing enthusiasm, focusing instead on meeting immediate needs. International coal prices, which remain weak due to surplus supply, also influence domestic pricing. Since September, coal prices have stabilized from mining sites to ports. Supply contraction supports prices despite weak demand. Although the fourth quarter brings seasonal factors like Daqin Line maintenance, hydroelectric adjustments, and winter storage, substantial price hikes seem unlikely given the current oversupply scenario. Historically, after the summer peak, coal prices typically rise during the fourth-quarter winter reserve period. Industry insiders believe that China’s coal production capacity still exceeds demand. Current prices have reached a floor, showing signs of stabilization, but recovery prospects remain slim. A slight increase is expected in the fourth quarter, followed by narrow-range oscillations.