Faltering China demand hangs over Asian coal

Wed Apr 17, 2013 8:13am EDT

Related Topics

* China coal imports weaken in Q2 - trade

* Stocks at power plants hover at 20-days of consumption

* Inventories at China coal mines climb

* Domestic price falls prompt buyers to hold off purchases

By Fayen Wong

BEIJING, April 17 (Reuters) - China's thermal coal demand has stalled and imports are set to fall this quarter, producers and traders say, removing the main prop of the Asian market and threatening to cut already weak benchmark Australian coal prices.

Utilites are sitting back and waiting for import prices to match a falling domestic market as supplies remain plentiful during a seasonal demand lull.

Inventories at power plants are enough for three-weeks worth of consumption and stocks are expected to stay high as utilities had already booked a sizeable amount of April-arrival cargoes in the past month.

The sustained fall in domestic coal prices means that the landed price of imports became more expensive than local supplies last week, reversing a discount of 10-20 yuan a tonne that lasted most of February-March, traders said.

China overtook Japan as the world's top coal importer in 2011. Faced with an oversupplied market, Asian producers are banking on continued strength in its imports to help support Australian thermal, or steam, coal prices that have already shed 18 percent from year ago to hover at around $89 a tonne.

"In the past, we would start looking at booking summer supplies by around April but we haven't signed anything this year because utilities aren't keen to buy," said a Shanghai-based trader.

Miners in major coal-producing province Shaanxi have already slashed ex-mine prices by 10-20 yuan per tonne due to poor sales and rising inventories, trade sources said.

Stocks at major coal mines hovered at 44.2 million tonnes at the end of March, up nearly 25 percent from 35.8 million tonnes in January, data from the Coal Transport and Distribution Association showed. Stocks were at 33.9 million tonnes a year ago.

"If domestic prices fall further, overseas prices will have to follow. Some producers are holding out for higher prices but I think that's wishful thinking," said a Singapore-based coal trader.

Chinese coal prices for immediate delivery slipped 1 yuan to 615 yuan ($99.46) a tonne on Wednesday, according to the benchmark Bohai-Bay Rim index. Coal at the Australian port of Newcastle, a benchmark grade for Asia, stood at $88.35 a tonne on Tuesday.

Sources said Chinese buyers are bidding around $80 a tonne CFR for May-arrival Australian coal with heating value of 6,000 kcal/kg, but sellers are offering around $83 a tonne.

"The price gap is too wide to get any deals done. Overall sentiment in China is also bearish, so buyers are waiting for credible signs of improving demand before they move," said an Indonesian coal producer.

China's economic recovery stumbled in the first three months of 2013, as the annual rate of growth eased back to 7.7 percent from the 7.9 percent pace set in the final quarter of last year.

Weak industrial output is expected to limit China's power consumption growth at between 4-6 percent in 2013, compared with a growth of 5.5 percent last year, an official from the China Electricity Council said on Tuesday.

($1 = 6.1831 Chinese yuan) (Editing by William Hardy)

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