China coal short-term outlook September 2022 Report

Commodity Market Report 03 October 2022

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Report summary

The QHD price increased to RMB1500/t in September as the market tightened due to hot weather, rainstorms, the Covid-19 pandemic and weak hydrogeneration, among other factors. China reported 370 Mt of coal output in August. Again, the daily output dropped below 12 Mt. We expect low production to continue in September and October as safety is the crucial issue limiting supply. In the meantime, maintenance activities on the Daqin rail line will worsen coal inventories at ports. As such, the QHD price will continue to go up. The steady resumption of steel mills brought extra steel output but became a burden on steel destocking and harmed the price. The steel mills and coking plants’ poor margin positions generated a new wave of production suspensions in October, similar to July. But we don’t expect the coking coal price to collapse drastically. Why is this?

Thermal demand: heatwaves boosted coal generation in August
Met demand: steel production increase undermined demand recovery
Domestic production fell for two consecutive months
We foresee a high likelihood of sliding coal supply in September and October
The national coal reserve increased 28.1% year on year to 207.9 Bt
Thermal imports: Russian exports to China are increasing
Met imports: higher volume from Mongolia expected
Thermal price: safety issues curtailed coal output which led to gradual price increase
Thermal outlook: cheaper Russian coal to slow growth of QHD price
Met price: disappointing September was not entirely unforeseen