Singapore — Chinese authorities have instructed railway companies to prioritize train wagons for thermal coal transportation while mandated state-owned miners to ramp up production to meet heating needs during winter, sources said Dec. 23.
Guangzhou Railway Corp. and Inner Mongolia Railway got instructions to cancel all train appointments to ensure the stability of power supply in Inner Mongolia and southern China during winter, sources said.
At least 70,000 mt/d of thermal coal shall be discharged in Hunan region in southern China, sources added.
Jinneng Holding Power Group Co. Ltd. has recently ramped up the shipping of thermal coal to utilities with urgent electricity needs while expanding procurement plans for thermal coal and increasing thermal coal plants' operating rates to balance supply and demand, sources said.
Guangzhou Railway, Inner Mongolia Railway, and Jinneng Holding Power Group were not available for immediate comments.
May coal futures prices on the Zhengzhou Commodities Exchange dropped sharply to Yuan 678.80/mt FOB ($103.90/mt), down Yuan 32/mt ($4.90/mt) from Dec. 21, market sources said.
"Sentiment in China for Chinese thermal coal turned less bullish seeing the Chinese government take actions to solve short-term needs," a southeastern China-based trader said.
Seaborne demand continued to be solid despite slower trading activities as more buyers in China held a wait-and-watch stance amid political uncertainties, sources said.
"Fundamentals remained strong on the shortages of coal, supporting near-term seaborne coal prices," a Singapore-based trader said.
The January futures prices did not drop as much as May prices, signaling the shortages of coal in near-term while more buyers became confident that China could resolve coal shortages in two to three months' time, a Shanghai-based trader said.
Long-term solution
Four Chinese regions in southern and eastern China, and other landlocked areas, limited power usage amid shortages of coal since Dec. 14, market sources said.
Power grids for thermal coal in Jiangxi and Hunan were running at their respective maximum capacities. Amid the shortage of alternative sources of renewable energy, more thermal coal plants are required to meet demand during peak winter, sources said.
"Local power utilities shall be built in order to ensure sufficient spare supply of electricity in the future before renewable energy is available to the market," an east China-based trader said.