China's largest coal producer Shenhua Group is trying to persuade traders and utilities to buy more coal in a bid to reduce inventories at ports as relatively high stocks at utilities and robust hydropower production continue to weigh on the market, market sources said Monday.
A manager at one large utility said it has sent several vessels to Huanghua port to help ease the glut after receiving Shenhua's request.
A source at another power plant in southern China said it had received a similar request from Shenhua a few days ago, and noted there were currently four vacant loading berths available at Huanghua port.
Coal stocks at Huanghua port totaled 2.21 million mt June 18, up a sharp 68.2% from the end of April when Shenhua raised prices Yuan 5/mt. Qinhuangdao port's inventory hit 7.15 million mt last Friday, the highest since March 10.
Rising temperatures in recent weeks has boosted demand for coal-fired electricity but this has not been enough to stimulate buying interest from coastal utilities as hydropower output and utility stocks are relatively high.
Speculation last week about a possible price cut by Shenhua also dampened market sentiment, with many traders and utilities maintaining a negative outlook for the near term.
Given the sluggish demand and overstocked inventory, analysts believe that Shenhua and other major producers will most likely lower prices in late June or early next month.
Utility sources said Shenhua has been selling 5,500 kcal/kg NAR coal at about Yuan 510/mt and might reduce the price to Yuan 505/mt in July.
The Fenwei/Platts CCI1 Index for 5,500 Kcal/kg NAR coal traded at Qinhuangdao port, a benchmark for domestic spot market, fell Yuan 6 week on week to Yuan 511.50/mt last Friday.
Shenhua's coal output in May was down 5.6% year on year at 25.2 million mt and sales down 13.8% at 38 million mt due to sluggish demand, according to a company filing to the Shanghai Stock Exchange.
Fenwei Energy is a leading provider of coal market information in China.