While coal prices in China might slip a bit further from the RMB570/t 5500kcal QHD mark in the near future, its looking increasingly likely that we are very close to the bottom, with the risk that prices will be substantially higher heading into Q4. We are, however, coming off a low base, so a 10%-15% rally is still not particularly great. But its a rally nonetheless.
First, it looks like the damage from hydro generation is not as severe as it could have been. Nation-wide hydro growth has slowed to low single digits in the last few months and subsequently coal burn has picked up. While its not gangbusters strong at ~5%YoY, its much better than earlier in the year.
Coal burn in southern importing provinces has been slower with hydro generation stronger in these regions. But I think the national trends are more likely to tip the balance for QHD prices.
Coal stocks at key power plants are also starting to come down to levels that would be considered getting low. As of July 10, key plants had enough for 19 days of consumption, a lot lower than the 25-26 days in July last year. The implied coal burn is also quite a bit stronger, so its not just lower supply driving a better balance, but better demand.
Finally imports are starting to fall. Some of this maybe related to credit difficulties or just a timing issue, with imports from Australia and Indonesia weaker despite strong export data. But given that stocks are falling in July, it doesn't suggest that the arrival of cargoes has tipped the market balance back into oversupply.
Again, this isn't a ringing endorsement for coal prices to rocket to levels that we saw back in 2010. But things to appear to have gotten sufficiently bad for prices to lift from the current low lows.