The perspective of the birth and economy: the coal price is extremely high and the relationship between supply and demand is reversed

The coal supply and demand dynamics in Shanxi have undergone a significant shift. Before June this year, the region faced a severe coal shortage, with production constrained and prices surging to record highs. Main coking coal, a critical input for steelmaking, was not even available at prices below 700 yuan per ton. Many coke enterprises were forced to halt or limit operations due to lack of supply. However, from late June, coal prices began to show signs of decline. A mid-July report by the Shanxi Provincial Economic Committee noted that coking coal prices were expected to continue falling in the second half of the year. This trend is not unique to Shanxi. Similar price declines have been observed in other major coal-producing regions across China. Analysts suggest that the coal market may be approaching an inflection point. Since July, coal prices in Shanxi—responsible for about a quarter of national production and a third of shipments—have fallen for the first time since 2000. In Linfen, a key coal-producing city, the price of main coking coal dropped to 645 yuan per ton, down from 715 yuan in June. By late August, prices had fallen by over 50 yuan per ton compared to July. In Taiyuan, the average coal price has dropped by around 10%, while in cities like Changzhi and Jincheng, the decline reached as high as 20%. The drop in coal prices is not confined to Shanxi. Shenhua Group reduced its Qinhuangdao Port coal trading prices, Yanzhou Coal Mining lowered blended coal prices by 30 yuan per ton, and Datun Coal & Power cut screening blended coal prices by 20 yuan per ton. In August, many state-owned coal mines in eastern China also announced price reductions, with average declines of 30–50 yuan per ton. The Qinhuangdao Port, a major coal distribution hub, also saw prices fall by about 30 yuan per ton. According to the China Coal Transportation and Marketing Association, the coal market has weakened since June, with price cuts expanding to major producing areas. Prices for coke, refined coal, and high-quality thermal coal have also declined, with major coal producers now participating in the price reductions. Industry experts note that the price fluctuations are driven by supply and demand. While the recent price swings were unexpected, increased production, expanded transport capacity, and slowing demand have made the decline inevitable. From January to July, Shanxi produced 233 million tons of raw coal, up 6.5% year-on-year. Nationally, coal output rose by 8.8% to 1.119 billion tons. Additionally, increased imports and reduced exports have further boosted domestic coal supply by over 14 million tons. Government measures such as lower import tariffs on thermal coal and tax rebates for exports have also contributed to the increase. With higher production, coal shipments have surged. Shanxi’s railway traffic reached 207 million tons from January to July, up 18.9% year-on-year. This has led to rising coal stockpiles at ports like Qinhuangdao, which reached 4.2 million tons at one point, far exceeding the theoretical capacity of 2.5 million tons. On the demand side, coal consumption has slowed. After May, macro-control policies led to excess steel production capacity, and Shanxi’s coke production was limited to 20–40%. Heavy rainfall this year boosted hydropower generation in southern provinces, reducing thermal coal demand. Shandong, for example, now has full coal stocks, with some power plants holding 40 days of inventory. It will take time to absorb the surplus. Coal price declines have shifted the balance between suppliers and buyers. Major steel companies like Maanshan Iron and Steel have pushed for price cuts, prompting coal mines to reduce coking coal prices by 45 yuan per ton. Other companies followed suit, and even cement firms in Chongqing are seeking lower prices. Several major Shanxi coal companies have received requests from out-of-province users for reduced contract prices. Speculative coal traders, who previously drove up prices, have started selling off their holdings. Coal from other provinces has also flooded into Shanxi, intensifying the price decline. For downstream users, lower coal prices are a boon. A fertilizer company executive in Shanxi said procurement became much easier, and many companies are waiting for further price drops before making large purchases. However, analysts caution that international oil prices may push energy consumers back to coal, and government policies targeting small and medium-sized mines could reduce production, potentially stabilizing prices. On August 22, the Shanxi Coal Mine Safety Supervision Bureau announced that 1,929 unlicensed coal mines would be shut down for rectification. Despite this, only over 700 state-owned mines exist among more than 4,000 total in Shanxi, suggesting that industry concentration remains low. If production can be cut by 30%, prices might rebound.

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