Sxcoal Issue #12 | Field trip to China's thermal coal bases, main finds and outlook
Don't miss China's thermal coal mines survey and outlook for 2023! Many questions need more clues in the market, and here is a detailed survey that covers the most-focused issues.
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China's raw coal production hit a record high of 4.5 Bt with 370 Mtpa of new capacity added in 2022. Behind the high output, what changes had took place? How much space for further output increase in 2023? How will long-term contracts impact the market?
With these questions, Sxcoal organized a field trip to see actual operations of coal mines in Ordos (Inner Mongolia), Shenmu and Fugu (Shaanxi), Hequ and Baode (Shanxi) and railway station over Feb 13-17, 2023.
We aim to better understand
Production & sales of mines after slumps in the spot coal market;
Capacity expansion & actual production of mines in Shanxi, Shaanxi and Inner Mongolia in 2022, and their output sustainability and growth space in 2023;
The fulfillment of long-term contracts and its impact on market.
Current operations
Production & sales: most coal mines recovered to normal production after the Lantern Festival in early Feb. Coal sales were weak amid tepid demand from power and non-power firms, which squeezed storage room and prompted some miners to cut offers. A few mines in Inner Mongolia saw sales warm up from Feb 15.
Transport: the surveyed rail station reported it's easy to get rail wagons due to certain inventory pressure, but traders' sentiment was hurt by the loss of shipping coal to N ports despite positive signs of price stabilizing at the portside market.
2022 production
Frequent capacity expansion and fast realization of designed capacity.
Most surveyed mines reported 1-2 times of capacity expansion in 2021-22, with increase of 1-7 Mt in 2022.
Low washing ratio of raw coal and CV drop of 6-7% at some mines.
It's common to see calorific value drop of power coal last yr, due to the strengthened supply guarantee task, insufficient capacity of supporting washing plants and coal seam changes.
An opencast mine noted a decline of nearly 7% in calorific value from 4,600-4,700 Kcal/kg NAR in 2020 to current 4,300 Kcal/kg NAR; a underground mine also reported a drop of 6% from 5,800-5,900 Kcal/kg NAR commercial coal to 5,500 Kcal/kg NAR power coal under supply guarantee drive.
All-in cost at 200-280 yuan/t and some higher.
The environmental & safety scrutiny didn't relax despite higher supply boost requirement.
2023 production outlook
Most surveyed coal mines noted there will be less new capacity put into the market in 2023, and their production will be on par with annual capacity, unless output cuts driven by drastic price drops.
The surveyed mines generally don't plan to ramp up production in 2023, yet there's room for output growth if required by the government.
Long-term contract fulfillment
The surveyed mines saw both higher share and volume of term contract coal in 2022 compared with past years, and expected further increase in 2023. Two mines in Shanxi and Inner Mongolia reported 90-100% of their production was used to guarantee power coal supply, compared with none previously.
Share of contract coal varied greatly among different mines, due to coal quality difference and inconvenient location.
All coal mines offered term contract coal in line with the government-set price caps.
Price caps drove down calorific value of term contract coal. One Shaanxi-based miner didn't supply washed slack coal but only raw coal (4,000 Kcal/kg NAR) to long-term contract buyers. Another miner intends to lift lump coal production for better profitability than term contract coal.
Coal miners prioritized supply to internal power plants or users inside province. Traders played a positive role in cargo quality and payment, which helped avert risks as buyers generally needed to handle transport issue themselves otherwise.
2023 market outlook
Near-term: The downside risk brought by high inventory and slow consumption may not disappear in the short run, meaning the market still lacks firm strength. Miners expected gradual recovery of demand in March.
Long-term: Domestic supply will likely remain at the same level as last year at least; policy and demand will be main factors that could impact the market.
Chinese coal prices are expected to move lower in a narrower range but higher frequency, with long-term contract cargoes further influence the spot market.
We conduct Weekly Survey for China's thermal coal, coking coal and met coke producers. More granularized datasets down to each of the mine/plant surveyed are available in EXCEL spreadsheets sent to subscribers via email each Thursday.
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