China coal short-term outlook July 2020: floods dampen demand and prices

GDP growth of 3.2% in the second quarter indicates China’s economy is back on the positive growth track. However, floods in southern parts of the country are casting a shadow over demand for both thermal and metallurgical coal. The floods have constrained both power and non-power thermal coal demand. Hydro generation has been strong following heavy rainfall, squeezing coal generation growth to just 1% in July and August. Non-power coal demand has also been constrained with cement output declining more than the historical average. As such, we expect the Qinhuangdao 5,500 price to remain on a downward trend throughout August. Metallurgical coal demand has also been impacted as the floods have subdued steel demand. Coal stocks are building up and Liulin #4 prices showed their first drop in two months. However, we are more optimistic for metallurgical demand in the second half of the year, thanks to support from economic stimulus packages. Read our report for more details.