Due to the dual pressure of a weakening spot market and a surge in import supply, coking coal and coke futures (collectively referred to as &#34;double coke&#34;) have recently faced sell-offs.
On December 8, the double coke continued the downward trend from last Friday's night session, experiencing a breakdown decline. Coking coal contracts 2605 and 2601, as well as coke contract 2601, all fell by more than 6%. Among them, the main coking coal contract 2605 broke below the 1,100 yuan mark, while the 1,000 yuan support level for contract 01 was under pressure. Since November, the monthly decline in coking coal futures has reached 17%, and the cumulative decline in coke futures has also reached 11%.
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In response to this round of sharp declines, institutional analysis generally believes that the slow seasonal recovery of downstream demand is the core reason. Although winter has arrived, the higher-than-expected temperatures in November led to lower daily consumption at power plants, coupled with continuous inventory accumulation, forcing coal prices to accelerate their return to fundamentals. In addition, the significant increase in imported coal has further alleviated supply-side pressure, making it difficult for spot prices to maintain high levels.
Despite the short-term price pressure, some institutions believe that the downside space is limited. Dongfang Caifu Securities pointed out that although the daily consumption at power plants is lower year-on-year, the supply continues to optimize under the backdrop of &#34;anti-involution&#34; and safety supervision, and the expected decline is controllable. Guotai Junan believes that the cyclical bottom of the coal sector has been confirmed in the second quarter of 2025, and the supply-demand pattern is showing a reversal inflection point, suggesting attention to high-dividend assets and valuation enhancement opportunities brought by long-term contract mechanism adjustments. Market focus is gradually shifting to the demand release brought by subsequent winter temperature changes and the bottoming effect of the new annual thermal coal long-term contract mechanism on industry profitability.
<h2>Weak Demand Drags Coal Prices Down Rapidly</h2>
The rapid decline in coal prices is directly attributed to the continued weakness on the demand side. According to data from Dongfang Caifu Securities, as of December 5, the Qinhuangdao coal price fell by 27 yuan/ton and 22 yuan/ton compared to last week and the same period last year, respectively. The price declines in major producing areas are even more pronounced, with the Yulin 5800 kcal, Erdos, and Datong 5500 kcal indices dropping by 31 yuan/ton, 38 yuan/ton, and 32 yuan/ton week-on-week, respectively.
The lower-than-expected coal consumption at power plants is the main manifestation of weak demand. From November 28 to December 4, the average daily consumption of power plants in 25 coastal and inland provinces was 5.56 million tons, a year-on-year decrease of 3.9%. Although the decline was narrower than the previous week's 7.2%, inventory continued to accumulate. As of December 4, the average inventory at power plants reached 136.41 million tons, basically flat year-on-year.
The high-level operation on the supply side has further exacerbated the supply-demand imbalance. The China Coal Transportation and Marketing Association pointed out at the coal economic operation analysis meeting on December 3 that coal supply has remained high this year, and coal consumption has seen negative growth year-on-year for the first time since 2017. Data from key monitored enterprises show that cumulative coal sales this year have decreased by 2.6% year-on-year, with sales of thermal coal and coking coal declining by 3.5% and 2.2%, respectively.
The continuous influx of imported coal has also put pressure on the domestic market. In November, Mongolia's coal exports reached 9.35 million tons, a month-on-month increase of 31.4%, with cumulative exports from January to November reaching 79.09 million tons, a year-on-year increase of 2.2%
<h2>High Inventory Suppresses Price Rebound Space</h2>
The continuous accumulation of inventory at ports and production sites has become a key factor suppressing coal prices. As of December 5, the inventory at the four northern ports reached 17.64 million tons, an increase of 1.09 million tons compared to the same period in 2024. Although the increase has narrowed from 2.42 million tons in the previous week, the absolute inventory level remains high.
According to data from Zheshang Securities, as of December 4, the total social inventory was 182.24 million tons, an increase of 320,000 tons week-on-week. Although it decreased by 5.76 million tons year-on-year, the current inventory level has significantly suppressed prices amid weak demand. The coal inventory in Qinhuangdao was 6.82 million tons, a substantial increase of 820,000 tons week-on-week.
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The coking coal industry chain inventory is also under pressure. The coking coal inventory at Jing Tang Port was 2.0294 million tons, an increase of 49,000 tons week-on-week, with an increase rate of 2.47%. The total inventory of independent coking plants was 7.9809 million tons, with available days at 12.88 days.
Dongfang Caifu Securities believes that the continuous accumulation of inventory combined with slow demand recovery is the direct reason for the accelerated decline in coal prices. However, considering that the peak demand season has not yet arrived, and the continuous optimization of the supply side under &#34;anti-involution&#34; and strict safety supervision, it is expected that the overall decline in coal prices will be limited.
<h2>Market Has Divergent Expectations for Winter Demand</h2>
Although coal prices are currently under pressure, there is a clear divergence among brokerages regarding the future market direction, with the core disagreement being the judgment of winter demand.
Dongfang Caifu Securities pointed out that in the short term, December temperatures are expected to be overall on par with the same period in previous years, and demand still has sustained upward momentum. The China Meteorological Administration stated that temperatures in most areas in December are close to or slightly higher than the same period in previous years, with only the central and northern parts of Northeast China and eastern Inner Mongolia experiencing lower temperatures. The agency believes that looking ahead to next year, there is still room for demand growth, while supply remains relatively stable with potential disturbances, and the supply-demand situation may shift from relatively loose to basically balanced or temporarily tight.
Guohaitong Securities judges that the cyclical bottom of the coal sector was confirmed in the second quarter of this year, and the supply-demand pattern has shown signs of reversal. The agency believes that the core of the coal price stabilization depends on subsequent winter demand. If temperatures drop more than expected from December to January, it may temporarily increase residential electricity demand, driving up coal consumption at power plants.
Zheshang Securities maintains an &#34;optimistic&#34; rating for the industry but emphasizes the reality that high inventory suppresses coal prices. The agency believes that although supply is ensured and production is increased, it is still limited by capacity constraints. It is expected that a supply-demand gap will still exist, and in some regions, there may be coal shortages during certain periods. After a short-term rebound, inventory is expected to decline, and the coal price center in the fourth quarter is expected to rise.
<h2>New Long-Term Contract Mechanism May Support Industry Profitability</h2>
The introduction of the new mechanism for long-term contracts for thermal coal in 2026 provides policy support for the market. On November 19, the National Development and Reform Commission issued a notice on the signing and performance of medium- and long-term contracts for thermal coal in 2026, clarifying the contract form, pricing benchmarks, and performance supervision methods.
Guohaitong Securities pointed out that the signing requirements for the new year's thermal coal long-term contracts have been further relaxed compared to the previous year, especially for pithead long-term contracts, which are more market-oriented. The pricing mechanism has changed from the original cap of 770 yuan/ton for annual port long-term contracts minus transportation costs to a monthly adjustment based on four major indices, consistent with the monthly adjustment mechanism at ports
The institution believes that the adjustment of long-term contracts for thermal coal not only raises the upper limit but also ensures the performance rate of the industry at the bottom of the cycle, which is more conducive to the improvement of sector valuations. The China Coal Transportation and Marketing Association predicts that coal consumption in China will peak during the &#34;14th Five-Year Plan&#34; period and will enter a more significant decline phase after experiencing a peak plateau period of about 10 years

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Coking coal futures plummeted under the dual pressure of weakening spot prices and a surge in imports, with the main coking coal contract falling below 1,100 yuan, a decline of over 17% within the month. On the demand side, warm winter conditions have led to weaker daily consumption at power plants and inventory accumulation, compounded by high supply levels and a sharp increase in imports, creating significant imbalance. Although there is short-term pressure, institutions believe that winter demand and long-term contracts will provide support, and the decline in coal prices may be limited

What happened with the sharp decline in coking coal and coke?