Brief Review of the National Coal Market Prosperity Index in September 2015

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This post was last edited by yimei180 on 2015-10-27 at 17:36. In September, there was significant downward pressure on the domestic economy; the growth rate of industrial production declined. The use of non-fossil fuel sources for power generation increased markedly, and ultra-high voltage power transmission expanded rapidly, putting pressure on coal-fired power plants. As a result, demand for coal decreased, while coal production rose on a month-on-month basis, and coal imports also increased. This led to an even more severe situation of supply exceeding demand in the market, with declining market conditions. It is predicted that the coal market prosperity index will continue to decline slightly in October. I. Overview of the coal market prosperity index in September: The national coal market prosperity index in September was -46.2, down by 2.1 points from the final value in August (-44.1), indicating a slight decline in market prosperity. 　　(1) The demand divergence index has declined. In September, the growth rate of industrial added value above designated size across the country dropped by 0.4 percentage points compared with the previous month. Total electricity consumption declined sharply on a month-on-month basis, with no year-on-year increase, while the generation capacity from non-fossil energy sources such as nuclear and wind power increased significantly, and ultra-high voltage power transmission expanded rapidly. As a result, thermal power generation declined by 3.6% on a year-on-year basis (in sharp contrast to the 3.7% year-on-year increase in August). Meanwhile, the production of coal-intensive products such as crude steel, pig iron, cement, and glass also showed a downward trend, leading to a decline in coal demand both on a month-on-month and year-on-year basis. The demand deviation index for that month was -22.2, 3.2 percentage points lower than the previous month’s figure of -19.0. (II) The supply-demand balance index declined. In September, both coal production and imports increased to varying degrees on a month-on-month basis; the total supply for that month was higher than the previous month’s level. Both the overall stock of coal in the country and the number of days such stocks could last increased as well. The coal supply-demand balance index dropped to -32.1 points, a decrease of 1.2 percentage points from the end-of-month value of the previous month, which was -30.9. 　　(III) Market expectations are expected to remain low. In September, the fundamental factors affecting coal demand did not improve. With insufficient demand, the maintenance work on the Daqin Railway had little impact on coal shipments, and port inventories remained high. Pessimistic sentiment in the market persisted. However, the fourth quarter brings the usual peak season for winter coal consumption, and there is hope that the market situation may improve. The market expectation index for September was -40.8, an increase of 1.6 basis points compared to the previous month. 　　(IV) The price disparity index is declining. In September, the China Coal Price Index, as well as coal prices in major coal-producing areas, transshipment ports, and key consumption regions, all declined to varying degrees, with the decline being slightly greater than in August. The price divergence index for September was -12.5 points, a decrease of 3 basis points compared to the previous month. II. Forecast for the coal market index in October (1) Coal demand: In the first half of October, the average daily coal consumption of key power generation enterprises was 12.6% lower than the previous month. Later on, heating needs in the Northeast region, as well as winter coal storage efforts in the northern regions, along with the seasonal decline in hydroelectric power generation during dry seasons, may boost coal demand to some extent; however, the weak trend is expected to continue. The coal demand deviation index is expected to rise slightly in October. (II) Supply and demand dynamics: Currently, coal supply is becoming more sensitive to price changes. There is an excess of coal supply in the country, and coal imports are expected to increase in the fourth quarter of each year. However, as domestic coal prices continue to fall, the price advantage of imported coal continues to diminish ； Due to insufficient demand for purchases downstream, railway traffic volume on the Daqin Line had already dropped to levels corresponding to the maintenance period by October, before the autumn maintenance work began. Inventory levels at ports and power plants showed an increase on a month-on-month basis. Taking into account the changes in coal inventory over the previous two months, it is expected that the supply-demand balance index will decline slightly in October. (III) Market expectations: Although the fourth quarter brings the usual peak period for coal consumption, the market is faced with a severe surplus of supply. The increase in seasonal demand in the short term will have limited impact on reducing the large excess capacity. Against the backdrop of slowing economic growth, economic structural adjustments, and the significant replacement of traditional coal-based power generation by new energy sources, pessimism among market participants will persist, and it is expected that the market expectations index will remain low in October. (IV) Market price: As of October 21, the price of 5,500 kcal thermal coal in the Bohai Rim region had dropped another 12 yuan per ton compared to the end of September. This month, some large coal companies introduced price cut promotions, resulting in declines that exceeded market expectations; in order to maintain their current market share, smaller companies will also reduce their prices, and it is expected that the price variation index will decline in October. Based on the above analysis, of the four core indicators constituting the national coal market prosperity index in October, the demand disparity index is expected to see a slight increase, while the supply-demand balance index and price disparity index will decline. The market expectations index is likely to fluctuate at low levels; therefore, it is predicted that the national coal market prosperity index will fall slightly in October.