Asia’s thermal coal rally loses steam as Chinese domestic prices stabilize

Asia’s thermal coal sector saw an unprecedented rally over the past two years, resulting in a more competitive market in the region. However, that impressive rally has been cut short and has begun to fizzle out of gas like a soda left out in the open for too long. China is a major contributor to the slowdown in the Asian coal sector. China saw its coal outlook decline in recent months thanks to several mitigating factors. Chief among those factors is the recent string of inspections the Chinese government conducted at several coal sites. As those inspections have come to an end, China’s coal sector has bounced back and stabilized.

The good times for the Asian thermal coal market have come to an end following an unprecedented run

As China dealt with the significant oversupply acquisitions being made, the Asian thermal coal sector welcomed the increased attention like a pre-teen Gen-Z on social media. Asian thermal coal saw an unprecedented rally over the past two years.

Prices across grades rose sharply during the first half of the year, boosted by strong Chinese buying and a price advantage for domestic coal. China’s thorough inspections of several coal mines in Inner Mongolia slowed down output in the sector, leading to an increase in the other Asian markets offering an alternative coal supply.

It marked the longest run for the Asian thermal coal market since 2023, when Chinese utilities and traders stocked up ahead of the Golden Week holidays and to meet winter restocking needs. The recent surge was driven by a surge in coal purchasing from China in response to market uncertainty due to oversupply issues, as well as a wave of summer heatwaves across China, driving up energy usage.

The end of summer in China has led to the coal prices stabilizing amid an increase in demand

Once the Chinese inspections of its coal mines concluded, along with the end of a very hot summer, Chinese coal prices began to stabilize. This marks the end of a very positive run for the other Asian coal producers as China turns back to domestic production.

“Chinese buying is usually supported before long holidays like Lunar New Year or Autumn break when domestic coal mine operation remains halted due to holidays” – An Indonesian coal energy expert

Thermal imports are set to decline at the current rate, evident in the coal sector in China. As the energy-rich nations of the world increase spending in midstream and downstream capacity upgrades, the Chinese coal sector has bounced back like a boxer knocking down his opponent in the 12th round after losing the first 11 rounds.

Coal sector analysts have welcomed the return to form for the Chinese coal sector, noting that the coal price gap in the market is due to decline over the next few months as the market stabilizes further.

“In China, rainfall in mining regions is expected to decrease in September compared to August; in addition, coal burn drops as temperatures cool. The widening supply-demand gap for coal is anticipated to weaken domestic coal prices and reduce the appetite for thermal imports.” – S&P Global Commodity Insights

China has become a leader in balancing the need for coal production with the integration of renewable energy

The stabilizing of the Chinese coal sector was expected. The inspections on Chinese coal mines were a necessary measure that the government was forced to undertake, whether it wanted to or not. The global coal market has seen several nations auctioning off leases that further strengthen the prominence of coal in the energy sector, despite the calls for a more balanced approach that fosters the renewable energy sector. Coal will remain a vital part of the global energy sector as energy demand increases across the world.