China's October coal output rose marginally compared with a year earlier but fell from the previous month. This suggests China's domestic coal shortages could be acute, given that imports for October fell sharply, curtailing available stocks for the winter demand season.
China produced 336.63mn t of all types of coal in October, an increase of 1.4pc compared with a year earlier. But this fell by 0.9pc against the previous month, suggesting domestic production is not increasing fast enough despite repeated reminders by the central government to meet utilities' winter restocking.
Such a marginal fall from the previous month should theoretically not have any major impact on China's market. But domestic production is especially critical to compensate for cuts in imports since April. China imported 13.73mn t of all types of coal in October, a drop of 46.6pc on a year earlier although this rose by 8.3pc from September. January-October imports were around 250mn t, a drop of 8.3pc compared with the same period last year.
Producers face difficulty raising China's domestic coal production significantly in the coming months because of strict safety inspections in Shanxi and Shaanxi, two of the key Chinese coal producing heartlands, following mining accidents in both provinces. The ensuing safety inspections are expected to last until the end of January, potentially curtailing stocks availability for the winter.
China's domestic shortages may be exacerbated by an increase in electricity consumption. The country generated 609.4 TWh of electricity in October, an increase of 4.6pc from a year earlier. Demand for electricity has risen steadily as China's economy recovers from the Covid-19 impact, putting renewed pressure on the tightly supplied domestic coal market.
China's domestic spot coal prices have risen well above the government-set upper limit of 600 yuan/t ($91.18/t). Argus last assessed the spot market for NAR 5,500 kcal/kg coal at Yn611.83/t fob Qinhuangdao port on 13 November, up by Yn1.05/t on the week. The price in US dollar terms rose by 16¢/t to $92.30/t fob.
China's main economic planning agency the NDRC has called for producers to raise output significantly for the winter and to keep stocks at the main coal transshipment port Qinhuangdao at above 6mn t. But inventories at the port were 5.06mn t yesterday, nearly 1mn-2mn t less than typical levels at this time last year.
This article is reproduced at www.argusmedia.com