Major Chinese power plants are set to kick off coal inventory restocking ahead of the winter heating season earlier than in previous years, worried by record-high coal prices and tighter supplies.
China Huadian Corp and State Power Investment Corp, two of China’s top four power generation companies, said this week they have started making plans for coal purchase and transport to ensure stable power generation and heating over winter.
Power groups, except for those in northeastern China, typically begin to replenish stocks in late September for the winter heating season, which runs from about mid-November to mid-March, and longer in the northeast.
The earlier start to restocking is set to keep coal prices high in what would normally be the shoulder season. China’s thermal coal prices hit a record high of 1,028 yuan ($159.46) a tonne on Thursday.
Fitch Ratings on Tuesday increased all its price assumptions of benchmark Qinhuangdao 5,500kcal/kg and short- and medium-term Newcastle 6,000kcal/kg price due to thermal coal supply constraints in China.
“Coal inventory at power plants is climbing up slowly, but the restocking process would become difficult soon amid high coal prices, limited output increase at coal mines and growing demand,” said a coal trader based in northeastern province of Liaoning.
Stocks at major power plants totalled around 51 million tonnes as of Wednesday, down from 76 million tonnes at the same time last year, data compiled by Wind shows.
Meanwhile, daily coal consumption at power plants reached 4.73 million tonnes, well above 3.71 million tonnes at the same time last year, due to stronger industrial demand.
China has been striving to boost coal production to meet surging demand. It has re-opened dozens of open-pit mines with an annual capacity of 67 million tonne, and granted approvals for new mines.
However, the increase in output is not expected to fully kick-in until late October, while most of the coal is already allocated.
“Production at the new mines is set to supply directly to contracted power plants. Hence, other downstream consumers would only see a limited amount in the market, which will hardly help cool down prices,” said a Beijing-based coal trader.
