China's thermal coal price returns to pre-pandemic levels

Coal consumption of IPPs recovered following the easing of the pandemic.

Thermal coal price in China has trended back to pre-COVID-19 levels as it strongly rebounded by 17% from the previous trough of $65.72 (RMB464) per tonne to $76.76 (RMB542) as of 3 June, according to a UOB Kay Hian report.

In comparison, international coal prices crashed 32% YoY at US$54.91/tonne, the lowest level ever recorded since January 2016.

With the resumption of economic activities in domestic China, the total national power consumption has recovered with year-over-year decline narrowing to 4.7% in April compared to 6.53% YoY in the first three months.

The daily coal consumption of independent power producers (IPPs) has likewise recovered back to normal levels, posting 6.2% YoY growth on 3 June, following the easing of the pandemic. However, the current IPP coal inventory level of 14.59 million tonnes is still 10% lower than the average of 16.1 million tonnes in May 2019.

“The current low IPP inventory levels and growing daily consumption suggests that IPPs will be restocking their coal inventories soon. The June-July period has also been a traditional restocking period for IPPs in the past,” the report said.

However, UOB Kay Hian noted that the coal price rally may end once domestic supply returns, and it will take some time for the recovering market to digest coal miners’ inventory build-up in Q1 2020, and more so with coal miners not slowing down their pace of production during the COVID-19 outbreak period.