Steam Coal Market Expected To Meet Inflection Point In August, Partial Supply May Be Tight In The Second Half Of The Year

In August, the price of steam coal futures rapidly stabilized after plummeting. From the perspective of supply and demand fundamentals, the price support of steam coal is still relatively strong, and the market is paying close attention to the implementation of coal production increase and price stabilization measures.

With the end of the high temperature weather in late August, the power plant power coal demand will also drop, and the market is expected to return to rationality. But looking forward to the second half of the year, the situation of coal supply and power supply shortage in some areas is still possible.

On August 2, the price of black commodity futures fell sharply, and steam coal fell by more than 6%, leading this round of decline. The next day, the black series continued to suffer setbacks, while the market speculated whether this was the inflection point of the coal market in August, the price of steam coal futures slowly stabilized.

On August 3, most domestic commodity futures closed down, with hot-rolled coil plate falling by 4.8%, rebar and stainless steel futures falling by more than 4.5%. The main contract price of steam coal fell slightly by 0.5% to close at 867.80 yuan / ton.

Supply and demand support power coal price easy to rise but difficult to fall

In the near future, commodity prices have shown an obvious downward trend. The prices of iron ore, steel, copper and other commodities that are concerned by the market have obvious signs of falling. However, under the strong support of power demand, the steam coal market has been hot.

At the beginning of mid May, the main contract of steam coal reached a record high of 944 yuan / ton, and then experienced a rapid slump. By May 21, the price of steam coal had fallen back to the level of mid April, as low as 713 yuan / ton. Looking back at the price level in the past years, the figure of 700 yuan / ton still exceeds the highest level in many years.

Coal price is easy to rise but difficult to fall. Since the end of May, the price of steam coal has been on the road of shock upward again. Throughout July, the price of steam coal has been rising all the way, and now it is approaching 880 yuan / ton.

Compared with steel, iron ore due to the off-season and limited production price drop, steam coal this year did not appear obvious light and peak season. In the first half of the year, due to the release of terminal demand, economic growth, mismatching of supply and demand and speculation of bulk commodities, the domestic power coal supply situation was tense, which led to the rise of coal prices.

Since the beginning of summer, the rising temperature and the continuous improvement of the economic situation make the demand for electricity continue to rise. However, hydropower replacement is not as good as in previous years. The rising temperature brings about the peak of power consumption, and the demand for steam coal in many places only increases. In the first half of the year, there has been a shortage of power supply in many places.

On July 23, the report on analysis and forecast of the national power supply and demand situation in the first half of 2021 released by China Power Grid showed that in the first half of this year, the power consumption of the whole society was 3.93 trillion kwh, with a year-on-year increase of 16.2%, and an average increase of 7.6% in two years. The average growth rates in the first quarter and the second quarter were 7.0% and 8.2% respectively.

In the first half of the year, power supply was tight in some parts of the region; In January, affected by cold wave weather, Jiangsu, Zhejiang, Anhui, Hunan, Jiangxi, Sichuan and Xinjiang had power shortages; In the second quarter, Mengxi, Guangdong, Yunnan, Guangxi and other places took measures of demand response or orderly power utilization, especially in Guangdong and Yunnan.

China Power Grid predicts that in the second half of the year, power supply and demand will be tight in central and southern China, especially in southern China, while the provincial power grids in Western Mongolia, Zhejiang, Anhui, Hunan, Hubei, Jiangxi, Guangdong, Yunnan and Guangxi are in short supply during some peak periods, and demand response or orderly power consumption measures will be needed The power gap between Yunnan and Mengxi is relatively large.

During the peak summer period, if there is a large range of extreme high temperature weather, the areas of power supply shortage will be further expanded to Jiangsu, Shandong, Henan, Hebei, Sichuan, Chongqing and other places.

Hong Yixin, an analyst with Huaxi Securities, pointed out that despite the influence of weather and epidemic situation, the daily consumption of power plants at the demand side of steam coal is still at a high level of 10% in the same period last year, while there is no obvious increase in production and supply at the supply side, and coal prices continue to be in a strong position.

Hong Yixin said that at present, the power plant inventory has entered a low level, and the port inventory is also at a low level. It is expected that the power plant will have greater pressure to replenish the storage in the future.

In July, the increase of rainfall in many places and the power restriction policy in some areas slightly eased the load pressure of thermal power enterprises; However, August is still the peak season of the market, and the daily consumption of coal-fired power plants is still at a high level.

Supply and demand in some regions will remain tight

Under the comprehensive influence of the continued strong demand for fuel and the rising price of coal, coal and power enterprises have also suffered a lot. According to the data provided by China power grid, in the first half of this year, the losses of coal-fired power enterprises expanded significantly. In June, some power generation groups suffered losses of more than 70% of coal-fired power enterprises and the overall loss of coal-fired power sector.

In the first half of this year, the growth rate of domestic coal consumption was higher than that of raw coal production, and the coal price was also running at a high level.

According to the data released by China Coal Industry Association, from January to June this year, domestic coal consumption was about 2.1 billion tons, an increase of 10.7% year-on-year; Over the same period, the raw coal output of Enterprises above Designated Size nationwide reached 1.95 billion tons, up 6.4% year on year; A total of 140 million tons of coal were imported, a year-on-year decrease of 19.7%.

Since the end of June, the national development and Reform Commission has successively adopted measures to stabilize the coal market, such as promoting the release of high-quality production capacity, arranging coal reserves and supervising the performance of medium and long-term contracts. Since then, the supply of coal in the production area has recovered slowly, but due to the influence of safety accidents and epidemic situation, the increment of coal supply is limited, and the overall price is still in an upward trend.

Recently, the action of stabilizing price and increasing production is still continuing. According to the national development and Reform Commission, in July, the Inner Mongolia Autonomous Region approved the land use procedures for 38 open-pit coal mines in Ordos city that were shut down due to incomplete land use procedures, involving a production capacity of 66.7 million tons / year. At present, all of these coal mines have resumed production and are speeding up the stripping operation. It is expected that the actual production will be formed in early August, and the daily output will be increased by 200000 tons after reaching the production capacity.

On July 30, the operation Bureau of the national development and Reform Commission announced that the general office of the national development and Reform Commission, the comprehensive Department of the national energy administration and the comprehensive Department of the state Mine Safety Supervision Bureau jointly issued a notice to encourage qualified coal mines to increase their production capacity and implement the capacity replacement commitment system for the increase of coal mine production capacity.

Cinda futures pointed out that part of the increased capacity in July is expected to form actual output in August, and supply is expected to usher in an increase; In addition, the policy on the replacement of new coal production capacity has a certain degree of relaxation, and is expected to form an increment in the second half of the year. In the short term, the supply and demand of steam coal market is still tight, but there is a more relaxed expectation.

Jenny, a power coal analyst at the coal and coke Business Department of Shanghai Steel Union, told reporters of the 21st century economic report that the high temperature weather in the country will gradually end in late August, and the pressure of coal used by power plants will also drop. It is expected that the price of steam coal will usher in an inflection point in late August. Attention should be paid to the epidemic situation and the implementation of measures to increase production and supply in production areas.

Recently, the national development and Reform Commission has visited Yulin and Ordos to supervise and urge the increase of production and supply in mining areas. It is expected that the supply of main production areas will increase in August, and the high daily consumption of power plants caused by high temperature weather will also drop, and the procurement demand will be weakened synchronously, and the overall tight supply and demand situation will be eased.

In its "coal economic operation report in the first half of 2021" issued by the China Coal Association, the demand for coal in the second half of the year is expected to maintain a growth trend, but the growth rate will be somewhat lower than that in the first half of the year, and the coal supply will further increase, but the market may still be affected by many uncertain factors such as policy adjustment, extreme weather, emergencies and so on.

China Coal Association predicts that in the second half of the year, supply and demand will be tight in some areas of the coal market, and coal prices will fluctuate at a high level.