While there has been a slowdown in supply of coal into coastal China, enough still hasn't been done relative to very weak coal burn. With hydro generation continuing to surge, the pressure will be on markets to push prices lower and reduce supply.
Thermal coal prices in China have been relatively steady for ~9 months. Price benchmarks in the Bohai sea have been in the US$100-105/t when including freight, while prices for imports have been a little below $100/t for 5500 kcal/kg material.
The stability of prices might suggest there isn't much to worry about. But while lower prices have seen a reduction in supply growth from both domestic sources and imports, it still looks to be too much.
While import growth has slowed a bit in the last few months, at 7%YoY growth in April it is not particularly weak. In the year-to-date, imports are up 20%.
Domestic supply into coastal regions has been much more subdued. Shipments were stronger in April, but for the year as a whole they are down ~1%.
Add the two together and coal supply via ship (whether domestic or import) is up ~4.3% in the YTD.
What is concerning is that firstly coal burn across the country has only risen 1.6% YTD, with coal burn weaker in coastal provinces. This means that stocks are currently comfortably high.
Secondly, the prospects for summer are not great, not because the macro is mixed but because hydro generation is again surging by ~20%YoY.
This dynamic drove a sharp drop in prices, but also domestic shipments as shown by the black arrow on the chart.
The risk for me is that the current level of prices doesn't appear to be creating the necessary supply adjustment. It probably doesn't have to be as severe as last year, with the stock situation better and current low prices not creating the same kind of financial pressure of holding inventory.
But it still seems like the pressure will be for landed China prices to be weaker.
