China coal short-term outlook July 2022 Report

Commodity Market Report 04 August 2022

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Report summary

China’s market faced significant issues in July, including record high temperatures vs the lowest quarterly GDP growth rate since Q1 2020 when the coronavirus pandemic started. The QHD price remained at above RMB1,200/t for the first three weeks of the month and then fell to below RMB1,200/t. We expect the market to maintain this downward trend in the near term. Steel mills suspended operations in July with the aim of cutting supply and supporting the price. Coke and coking coal prices dropped drastically in response. This tactic began to work during the last week of July, when the steel price finally gained strength and margins widened. At the same time, some steel mills started talking about resuming their BFs and buying interest for coking coal emerged. What does this mean for coking coal markets in August?

Thermal: coal generation dropped 6% in June year-on-year even with record high temperatures
Met: more BFs move into overhaul to finally limit met coal consumption
Domestic supply stayed strong in H1 2022 with daily output of 12.1 Mt ahead of NDRC’s target of 12 Mt
Despite expectations of intensified safety inspections, we believe coal supply will remain solid
Coal capacity pipelines update
Thermal imports: seaborne thermal coal imports in 2022 should be 64 Mt lower than last year
Met imports: Russia and Mongolia leading
Thermal: QHD price started to fall end of July as summer demand recedes
Met: price weakness in line with demand shrinkage