Summer heat boosts demand expectations, and thermal coal prices rebound week over week

Overview

This report tracks weekly changes in prices, inventories, and demand in China's coal market. The core conclusion is that, in the week ended July 17, China's domestic thermal coal market rebounded, with both production-area and northern port prices rising, mainly supported by the spread of summer heat, rising thermal power demand, production restrictions due to safety inspections in producing areas, and negative shipping cost margins; in contrast, coking coal prices were relatively weak.

Core views

Thermal coal was supported in the short term by improved demand expectations, and prices posted a week-over-week rebound. As hot weather spread, charts related to daily thermal coal consumption across 25 provinces became the focus this week; utilities and non-power industrial users in regions such as East China, including metallurgy and chemicals, showed mild restocking. For coking coal, domestic mine-mouth prices and Australian QLD prices weakened, indicating that demand or price momentum for coal linked to the steel chain may be weaker than for thermal coal.

Analysis framework

The report uses a weekly price-tracking framework, comparing week-over-week, year-to-date, and annual average differences in port prices, mine-mouth prices, seaborne prices, coking coal prices, and port inventories, and explains price changes in conjunction with hot weather, power generation demand, production restrictions due to safety inspections in producing areas, negative shipping cost margins, and restocking behavior. Data sources include Sxcoal, CCTD, McCloskeys, and Morgan Stanley Research.

Methodology notes

• Commodity Price TrackingWeekly Coal Price and Inventory Monitoring

  Track thermal coal, coking coal, and port inventories through week-over-week, year-to-date, and average comparisons.

  This framework is used to judge the short-term direction of coal spot prices and distinguish price changes across production areas, ports, seaborne markets, and imported coal.

• Industry Research RatingMorgan Stanley Relative Rating System

  Overweight, Equal-weight, Not-Rated, Underweight, and industry view Cautious.

  Equity ratings reflect expected risk-adjusted total returns relative to the industry coverage universe over the next 12 to 18 months; an industry view of Cautious indicates that the analyst is cautious about the industry's performance relative to the broader market benchmark.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Thermal Coal

  Directly related, with prices supported by summer power demand and supply constraints in producing areas.

  Strengths

  The spread of high temperatures is driving higher thermal power demand, utilities and non-power industrial users in regions such as East China are restocking mildly, and production restrictions due to safety inspections in producing areas support prices.

  Weaknesses

  Negative shipping cost margins at ports reflect continued pressure in logistics and price structure, and the price rebound depends on short-term weather and the pace of restocking.

  Comparison

  Compared with coking coal, thermal coal showed stronger price performance this week, with both the QHD and CCI indexes rising.

  Risks

  Cooling weather, slower restocking, policies to ensure supply, or production recovery may weaken price support.

• Coking Coal

  More closely related to demand from the steel chain, with weaker price momentum than thermal coal this week.

  Strengths

  Some FOR prices were basically flat, and year-to-date gains remain relatively high.

  Weaknesses

  Liulin No. 4 mine-mouth price and QLD coking coal price fell week over week, indicating weak short-term demand or pricing.

  Comparison

  Thermal coal rebounded on improved power demand, while coking coal continued its downward trend.

  Risks

  Weaker steel demand, inventory pressure, or falling import prices may continue to weigh on coking coal.

• China Coal Equities Coverage Basket

  Changes in coal prices affect earnings expectations for coal companies; the report discloses ratings for covered names including China Coal Energy, China Shenhua Energy, Shaanxi Coal Industry, and Yankuang Energy Group.

  Strengths

  Higher thermal coal prices are usually positive for profit expectations of thermal coal producers.

  Weaknesses

  The industry view is Cautious, and ratings differ across A-shares and H-shares of different companies.

  Comparison

  In the disclosure table, some H-shares and resource stocks are rated Overweight, while some A-shares or coking-coal-related names are rated Equal-weight.

  Risks

  Falling coal prices, policy regulation, the end of seasonal demand, and disclosures of investment banking or position-related conflicts of interest all need to be taken into account.

Key data

• QHD 5500 Thermal CoalRmb722/吨As of July 17, up 0.1% week over week and up 3.9% year to date.
• BSPIRmb713/吨Down 0.1% week over week and up 2.6% year to date.
• CCI 5500 Thermal CoalRmb821/吨Up 2.6% week over week and up 20.4% year to date.
• Shanxi Datong 5800 Mine-Mouth PriceRmb708/吨Up 3.7% week over week.
• NEWC Thermal CoalUS$130/吨Flat week over week and up 19.3% year to date.
• Liulin No. 4 Mine-Mouth PriceRmb850/吨Down 1.7% week over week.
• Liulin No. 4 FORRmb2,010/吨Basically flat week over week and up 27.2% year to date.
• QLD Coking CoalUS$233/吨Down 2.1% week over week and up 6.9% year to date.
• QHD Inventory6.80百万吨Flat week over week and down 2.4% year to date.
• Asia Pacific Industry ViewCautiousThe disclosure table shows that the Asia Pacific Industry View corresponding to China Coal is Cautious.

Impact & implications

The rebound in thermal coal prices is favorable for the short-term revenue and earnings elasticity of coal producers, but it may create cost pressure for downstream power and energy-intensive industrial users. If high temperatures persist, restocking expands, and production restrictions due to safety inspections in producing areas continue, support for thermal coal prices may remain; if temperatures cool, industrial demand weakens, or policy increases supply assurance, the sustainability of the price rebound may be limited. The weakness in coking coal suggests that demand along the steel industry chain still needs to be monitored.

Risks

• After summer heat fades, thermal power demand and restocking demand may decline.
• If production restrictions due to safety inspections in producing areas are relaxed, supply recovery may pressure thermal coal prices.
• The decline in coking coal prices may reflect weak demand along the steel chain.
• Policies to ensure supply, price regulation, or changes in imported coal may alter domestic coal price trends.
• The report discloses that Morgan Stanley has business or position-related interests with some covered companies, and investors should treat this research as only one factor in decision-making.

What to watch

• Changes in daily thermal coal consumption across 25 provinces.
• Domestic thermal coal price indexes such as QHD 5500, CCI 5500, and BSPI.
• The pace of safety inspections and coal mine output recovery in producing areas such as Shanxi.
• The intensity of restocking by power plants and non-power industrial users in regions such as East China.
• QHD port inventories and the negative shipping cost margin situation at northern ports.
• Whether Liulin No. 4 and QLD coking coal prices continue to weaken.