A recent sharp rise in coal stocks at China's Qinhuangdao Port and a consequent fall in the country's domestic coal prices could continue to impact European API2 (CIF ARA) financial thermal coal prices, according to analysts at investment bank Citi Thursday.
Year-ahead CIF ARA coal swaps have been on an extended bear run this year, losing almost $20/mt since their late-January peak of $118/mt to close below $100/mt for the first time in 17 months last week, according to Platts data.
While market participants have pointed to a glut of supply in the Atlantic Basin as a driving force behind the decline, they have also acknowledged the slowdown in Chinese spot purchasing this year as instrumental in keeping global thermal supply and demand unbalanced.
In a research note, Citi analyst Pierre Lau said stocks at Qinhuangdao had surged 15.2% week on week to 6.96 million mt Wednesday, with average daily inflow exceeding outflow by 18% last week, causing more inventory at the port.
Lau said the low outflow was due to China's weak economy, with power consumption growth in the country decelerating to 3.7% year on year in April, from 6.8% in the first quarter.
He also noted that coastal freight rates to carry domestic coal from northern China's coal-producing region to ports in the heavily industrialized south of the country are currently 24-30% below the 2011 year average.
"The Chinese coal market is effectively the swing market for global coal demand and therefore is a key market in setting global coal prices," Citi said. "The current Chinese coal market dynamic could continue to impact the European API2 coal prices, which have been falling over the past month, with implications for power prices and spreads in European markets."