China’s ongoing coal slump is expected to continue for several months, significantly affecting the global market. The world’s largest coal producer and consumer, China has worked diligently to prevent the economy-crushing blackouts of past years by stockpiling fuel. However, with record domestic production and increasing imports, combined with a slowing economy, the country now faces a surplus of coal. As a result, local prices for thermal coal have plummeted to near a four-year low.
Li Xuegang, an analyst from the China Coal Transportation and Distribution Association (CCTD), warned that “thermal coal could test new lows in the short term” as a result of the price drop. The lower prices are expected to reduce China’s appetite for imports, with a potential recovery in demand only occurring in the second half of the year, contingent on the government’s economic stimulus efforts. This period coincides with peak cooling demand from air conditioning during the summer months.
Meanwhile, global coal prices have followed a similar downward trend. Australian Newcastle coal futures fell to their lowest level since 2021 this week, further contributing to the market’s instability. However, there may be some relief if major players like Glencore are forced to cut production due to the weakened prices.
Despite potential relief, analysts predict that China’s coal market will remain challenging in the short term. CCTD’s team anticipates that spot prices will fall below long-term contract levels, particularly affecting low-quality lignite, which is often blended with higher-grade coal. Indonesia, a major supplier, is expected to be hit hardest by these market conditions.
The highest-grade coal, used in steel production, is also facing difficulties due to China’s ongoing property crisis. Steel mills are pushing for larger discounts on their coking coal purchases, according to CCTD analyst Li Xiaolong.
Additionally, geopolitical factors such as the Trump administration’s tariffs and China’s policy response to the trade tensions may influence the future demand for coal. At next month’s National People’s Congress, Beijing’s actions could provide further insight into the direction of the country’s coal consumption.
On the supply side, China faces mounting pressure. The key mining hub of Shanxi is expected to resume output after safety inspections curtailed production last year. Mongolia, China’s top coking coal supplier, plans to boost exports to China by nearly 20% this year, which could reduce Australian market share, according to Bloomberg Intelligence.
The coal slump is one of many economic challenges facing China, which also continues to grapple with a slowdown in demand for iron ore from its biggest consumer, China, resulting in a significant profit drop for Fortescue Ltd. and Rio Tinto Group. Meanwhile, China plans to tighten its control over the rare earth mining sector, which has become a critical component of its trade conflict with the United States.
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