(Ecns.cn) -- Coal prices at Qinhuangdao Port, China's largest coal transshipment port, have fallen sharply in recent weeks due to swelling stockpiles.
By June 18, inventories at the port had reached a record high of 9.46 million tons, approaching its maximum capacity of 10.5 million.
Any coal inventory above 8 million tons at the port is considered oversupply, but more coal is coming in from Shanxi, Shaanxi and Inner Mongolia every day, reported Xinhua's Economy & Nation Weekly magazine.
As a result, coal prices have declined continuously. According to statistics from the China Coal Transportation and Distribution Association, the price of 5,500 Kcal thermal coal on June 18 dropped 2.7 percent to 725-740 yuan per ton.
It was the biggest fall since March 8, 2010, pointed out China Radio International (CRI).
Li Ting, senior analyst at the Distribution Productivity Promotion Center of China Commerce, estimated last week that prices will continue to fall to about 630-650 yuan per ton.
"It may sound a little pessimistic. But the conclusion is based on historical data of China and foreign countries," explained Li.
An official at the Qinhuangdao Coal Trading Center told Economy & Nation Weekly that "steam coal prices have been going down for five consecutive weeks."
Sluggish demand by downstream users nationwide has caused the excess storage and accelerated the lowering prices, the official said.
"The big power consumers, such as manufacturing companies and cement producers, have less production this year, which has resulted in less power demand, falling thermal coal prices and a weak market," said Chen Lihui, a representative of a coal trading company in Hebei Province.
Statistics show that currently the country's major power generators already have coal inventories of over 93 million tons, enough for more than 28 days.
"There has been plenty of rain in southern and eastern China, which has helped hydropower generation increase," said Chen. "The thermal coal market now has low prices, but no buyers."
CRI cited a National Development and Reform Commission statement released June 13 that said hydropower generation grew 36 percent in May year-on-year, which means thermal coal consumption fell by 8 million tons.
Industry insiders said coal inventories at power plants are currently high and that they won't buy any more coal for the time being, unless the price falls to a certain level, reported Want China Times, an Taiwan-based English news platform.
Li Xuegang, an expert from the Qinhuangdao Coal Trading Center, added that increasing coal imports have also contributed to the high inventory.
According to customs data, China imported 86.55 million tons of coal in the first four months of this year, with a growth rate of 69.9 percent, an historic high.
Coal imports from Indonesia, South Korea and Canada all grew more than 50 percent in quantity. Imports from South Africa, Australia and Russia doubled.
Li said that coal traders and buyers have now become more cautious as prices continue to drop. Following reports of contract breaches between the two parties in the country's coastal areas, the entire industrial chain has seen its downward trend quickened, he added.
In response, some coal dealers and producers have begun trying to increase sales through a low-price strategy to release inventory pressure, or by expanding their business scopes to create more revenue sources.
But "the outlook for the price of coal is poor in the short term," said Li.
The Shenhua Group, a large state-owned coal-based integrated energy enterprise, has focused more effort on markets in southern China since spring this year.
Earlier this June, the Shanxi Coking Coal Group closed a deal with Shuanghui Group, one of the largest meat processing companies in China.
The move caused a sensation in the coal industry. Fan Liya, director of the firm's Market Strategy Research Center, told Economy & Nation Weekly that "China's coal market has reached a turning point."
The China National Coal Association held two meetings in the first half of June. It concluded that the situation of supply outreaching demand will pose risks to related companies, so domestic coal production should be capped to stop devaluation.
Xing Lei, director of the Research Center for Listed Coal Companies at the Central University of Finance and Economics, said that "the golden decade of the coal section has come to an end. In the new era, coal prices in general will be stable with a slight decline."
Some experts have said the Chinese government is trying to use this as an opportunity to carry out reforms in the coal market.
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