According to news from the Wind Trading Platform, HSBC's latest research report shows that China's coal spot prices continue to decline, with the price of Qinhuangdao 5500 kcal thermal coal dropping to about 610 yuan/ton, reaching the lowest level in nearly five years.
Although market expectations suggest that prices may stabilize and rebound with seasonal consumption recovery and buyers beginning to replenish stocks before the summer coal peak, HSBC believes that seasonal replenishment is unlikely to drive a substantial rebound in coal prices, and there remains a risk of prices falling below 600 yuan/ton in the coming months. Historically high domestic production and persistently high port inventories are the main obstacles to a price rebound.
Currently, coal prices have dropped 30% compared to the same period last year, a decline that far exceeds previous market expectations.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6c39b986-acae-4d74-bb6c-a5f03d4a4378.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6c39b986-acae-4d74-bb6c-a5f03d4a4378.png"/>
<h2>Demand Is Not the Main Reason for Price Decline</h2>
The research report indicates that since March this year, the average daily coal consumption of major power plants has rebounded to levels similar to those of the same period last year or the average over the past three years. Data from May 26 shows that the average daily coal consumption was 772.9 thousand tons, a year-on-year increase of 2.2%.
Therefore, HSBC does not believe that demand is the main driving factor behind this year's decline in coal prices. HSBC analysts point out that with the peak demand for residential electricity and the peak season for hydropower generation approaching, China's coal demand is expected to remain similar to last year.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/2c0fb831-2eca-47dd-bdf6-61ea61528af9.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/2c0fb831-2eca-47dd-bdf6-61ea61528af9.png"/>
<h2>Supply Pressure and High Inventories: Port Stocks Exceed Last Year's Levels by Over 20%</h2>
The real drag on coal prices is the imbalance on the supply side. Since the beginning of this year, domestic coal production has continued to reach historical highs, with production from January to April increasing by 6.6% year-on-year, driven mainly by the recovery of production in Shanxi and capacity expansion in Xinjiang.
Although production decreased by 12% month-on-month last month, coal companies continue to increase production to maximize profits, and supply growth is expected to outpace demand growth for the remainder of the year.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/34c0bea3-717c-41ca-a3a4-b665156f05d3.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/34c0bea3-717c-41ca-a3a4-b665156f05d3.png"/>
Port inventory issues are another focus of market attention. Although inventories have decreased with the start of seasonal replenishment, they are still 21% higher than the same period last year, which poses an important obstacle to a rebound in coal prices.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/75e6add4-e438-4f3c-8ff9-c20acc5aa7bc.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/75e6add4-e438-4f3c-8ff9-c20acc5aa7bc.png"/>
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HSBC

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As coal spot prices fall to a five-year low, HSBC further warns that this is not the bottom yet, and there is still a risk of coal prices dropping below 600 yuan/ton in the coming months. Historically high production levels and persistently high port inventories are the main obstacles to a price rebound

- HSBC's latest report indicates that China's coal spot prices continue to decline, with Qinhuangdao 5500 kcal thermal coal prices dropping to around 610 yuan/ton, the lowest in nearly five years.  
- Despite seasonal consumption recovery and buyers restocking before summer peaks, HSBC believes that significant price rebounds are unlikely due to high domestic production and elevated port inventories.  
- Currently, coal prices are down 30% compared to last year, driven primarily by supply imbalances rather than demand, as domestic coal production remains at historical highs.

Coal prices will test the "600 mark" due to historically high production levels and elevated port inventories