China’s coal prices, already at a four-year low, may face further declines as high inventories loom over the market. Stockpiles at major transportation hubs are approaching record levels, with current reserves more than a third higher than at the same time last year, according to the China Coal Transportation and Distribution Association. This oversupply could drive prices even lower after a significant drop of over 20% in the past year.
“There’s no bright spot, prices may test new lows in coming months,” said Xu Dongkun, an analyst at CCTD, during a briefing on Wednesday.
The market’s troubles stem from a combination of aggressive buying by China and other Asian importers last fall, coupled with reduced consumption as the region enters spring. As a result, stockpiles remain high, forcing miners to cut prices in a bid to attract buyers. Power generation from fossil fuel plants fell in both January and February, marking only the third decline in the past 35 years during the winter months.
According to Morgan Stanley analysts, including Sara Chan, spot prices have not yet reached their lowest point. If they fall below 400 yuan per ton, many Chinese miners could face losses, warned Bloomberg Intelligence on Thursday. That would represent a nearly 40% drop from current levels.
China’s largest coal producer, state-owned China Shenhua Energy Co., reported a decline in profits this week. The company also announced cuts to its coal division’s budget and a halt to spot foreign coal purchases due to high inventories. Smaller miners are feeling the impact even more, with companies in the major producing region of Shanxi resorting to salary cuts, downsizing, or even shutting down.
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