Chinese coal burn is showing signs of somewhat better growth in June and is currently a bit higher than this time last year. This is a further sign of stabilisation in the macro picture, while it the seasonal pick up in hydro generation hasn't been as big a problem as in 2012, at least so far.
The big problem for Chinese coal prices has been that while demand has grown a little, supply has continued to be too strong.
This strength is not coming from imports, which have pulled back a meaningful ~5.5%YoY in the last 2 months.
More problematic is the strength of domestic supply. This is difficult to get a handle on given the raft of domestic supply data. But the most reliable number, which should also represent the highest cost, are shipments from Northern Chinese ports.
These have continued to grow in April and May despite very low prices. Growth in this supply has also more than offset the drop in imports to coastal provinces.
Another sign of ample supply is the rise of inventory. This appears to be happening at mines, with KSOE mines seeing inventory up 10mt compared to May 2013. Northern ports have also seen inventory rise over the last 3 months.
Stocks at power plants have also risen noticeably, with reports of end June levels suggesting a jump in inventory in the last 10 days to just under 80mt.
The ongoing strength in supply within China has continued to undermine prices within China and in the seaborne market. With inventories building even as summer demand ramps up, prices are likely to erode a bit further.
Met coal supply into China has also been problematic for global prices. While seaborne shipments have eased, we have seen greater strength from Mongolian exports in the past couple of months.
This has also coincided with further strength in Chinese coke exports, which are now competing on level terms given the removal of taxes in China. Coke exports were just under 1mt in May, the strongest level seen in years.
