Power Coal: Import OR domestic trade, this is a problem!

At present, the difference between internal and external price of power coal is enough to attract enterprises to actively purchase imported coal, the key is whether the import restrictions are lifted. The market expects that Australian coal tariff restrictions may be loosened in the future, so the sentiment of domestic coal trade will increase.

Despite the unexpected increase in port stocks due to the weak demand for power coal during the April overhaul of Daqin Line, the release of power coal output in the main production area continues to be constrained by environmental protection, safety supervision, coal pipe tickets and other factors, which makes the coal price in the production area remain firm, so the price of coastal power coal only slightly falls, while the price of power coal futures pasted on the spot is strongly oscillating. Recently, the National Development and Reform Commission issued the key points of the work of eliminating excess coal production capacity in 2019, which clarified that the coal industry will be fully transferred to a new stage of structural production capacity removal and systematic high production capacity. In fact, since 2018, the work of capacity removal in the coal industry has been no longer purely pursuing capacity removal, but emphasizing the "survival of the fittest" and speeding up the replacement of coal capacity. Data show that the total coal production capacity of the whole country with complete licenses is gradually increasing, and only the number of coal mines continues to decrease. This year, the relevant departments approved the reconstruction and expansion or new construction projects of large-scale coal mines in eastern Mongolia, northern Shaanxi, Shanxi, Gansu, Xinjiang and other regions. As of March 2019, the total investment of fixed assets in coal mining and washing industry in China increased by 17.3% year-on-year, and the growth rate was 16.5 percentage points higher than that in January-February. This indicates that the investment and construction activities of coal industry are hot, and it is expected that new production capacity will be put into operation in the next few years. However, capacity expansion does not equate to output growth. On the one hand, the start-up rate of legitimate and compliant coal mines is constrained by many factors such as environmental protection, safety supervision, coal management tickets and so on, and the actual output is limited; on the other hand, in the past, a part of coal production came from small coal mines which are not within the statistical range, and now this part of backward production capacity has been eliminated. Therefore, at present, most of the coal mines in the production area are ready for sale, and there is no inventory pressure. The price of Hangkou 5500 calorie coal has risen by 10-30 yuan per ton in the off-season of consumption in the past month. In the near future, the environmental protection inspection has been intensified, and the coal price in the production area is expected to remain high.

Port inventory is increasing, and import domestic trade game

Despite the strong coal price of the origin, the price of 5500 calorie coal in the port has dropped slightly by about 10 CNY/ton in the past month, dragged down by weak demand downstream. "One rise and one fall" causes the cost of arrival of domestic coal to be heavily upside-down with the selling price, which inhibits the enthusiasm of traders to ship to the port. However, downstream haulage is more inactive. Therefore, the coal stocks in northern ports increase unexpectedly slowly and gradually, which puts pressure on the price of coal in the port.

April 6-30, the Daqin Line carried out a 25-day spring centralized overhaul. During the period of overhaul, the daily transportation volume of Daqin Line is only 105,000-11,000 tons, and the daily coal railway import volume of Qinhuangdao Port is reduced to about 500,000 tons. However, the coal stock of Qinhuangdao Port is almost stable at about 6.3 million (+100,000 tons), which is obviously inconsistent with the seasonal decline law of the same period in previous years. After the overhaul, Qinhuangdao Port's coal stocks showed a momentum of upward acceleration. As of May 13, the stocks were 66.05 million tons, much higher than the same period in previous years. One of the reasons for the inactive downstream haulage is the low daily consumption of power plants in off-season, and the second reason may be the rebound of imported coal. The data show that the average daily coal consumption of the six power plants in coastal areas dropped significantly below 600,000 tons from late April to May Day holiday, which is close to the lowest level in the same period in the past five years. After the May Day holiday, the recovery of daily coal consumption is slower than expected. This may be related to the earlier growth of hydroelectric power generation in South China. In March, China's hydropower output grew 22% year-on-year, while the thermal power output grew only 1% year-on-year. Rainfall has been on the high side in China since April, and it is expected that hydropower generation will maintain a high-speed growth.

In April, China's coal imports rose to 25.299 million tons, an increase of 7.7% annually and 13.5% year-on-year. From January to April, China imported 99.926 million tons of coal. Compared with January to March, the cumulative growth rate changed from negative to positive. At present, the difference between domestic and foreign prices is enough to attract enterprises to actively purchase imported coal. The key is whether the import restrictions are lifted or not. The market expects that Australian coal tariff restrictions may be loosened in the future, so the sentiment of domestic coal trade will increase.