Chinese coal burn slips in early April

Coal burn growth looks to have stalled in the early stages of April, slowing from ~5%YoY to 2%YoY according to high frequency data.  This may partially due to better hydro generation and also due to a sluggish top down picture.

Either way, it suggests that we shouldn't be too excited about the tentative bottom in Chinese coal prices.

The intra-month coal burn data has tended to be weaker than the official NBS data when conditions are particularly bad, which is perhaps a function of the subset the data comes from (~65% of coal burn capacity).

That said, the higher frequency data does still capture the pressure on coal prices, even if the swings are larger.

There was a considerable amount of destocking through March, which has helped support prices. Inventories at power plants dropped below 70mt and currently sit at 19 days of consumption.

Chinese ports also saw a large drop through March.  Inventory at the 7 Northern ports fell almost 6mt by the end of the month.

Inventory is still higher than the end of December, although to some degree that is seasonal as supply improves coming out of the coldest months and consumption rates drop.  Compared to March last year, inventory at ports and coastal power plants are ~4mt lower, or 3 days consumption.

The rise in inventory in terms of days of consumption through the quarter helps explain why prices fell away, although the inventory picture is currently better than the start of 2013.

Looking into 2Q13, it currently seems unlikely that we will see a significant shift in inventory days, especially if coal burn rates persist at the low levels seen in the early April data.

Potential supply from the seaborne market and northern ports is still ticking along at decent rates despite weak prices, with there not a lot of evidence at this stage to suggest that will change in the coming quarter despite weak prices.

At this stage I'm assuming an apparent consumption growth rate of ~6%YoY, which along with a bit of extra supply would keep inventories stable.

This growth would need to be revised lower if the higher frequency data continues at current levels for the next couple of readings.

There is also the threat of stronger hydro generation growth.  This has been running at ~10%YoY in Q1, although this is the seasonally weak period in terms of levels and historically hasn't provided much information about growth in 2Q/3Q.