Recently, the price of thermal coal has experienced a continuous and significant decline. From mid November 2024 to February 21, 2025, the closing price of 5,500 kcal thermal coal at Qinhuangdao Port dropped to 719 RMB/ton, a decrease of 23.4% compared to the same period in 2024. This unexpected decline is mainly due to downstream demand significantly lower than expected.

1. Imbalance between supply and demand

Supply increase: The overall production increase in China is about 60 million tons, with a growth rate of 1.3%. Xinjiang province alone added 80 million tons, with a growth rate of 17.5%. Coal supply has significantly increased. At the same time, the cost advantage of imported coal is significant. In 2024, the import volume will be on par with Xinjiang's production, reaching 540 million tons, with an additional import of 66 million tons and a high import growth rate of 14.4%.

Reduced demand: The demand for thermal coal mainly comes from the power industry and industrial production. When economic growth slows down or electricity demand decreases, the demand for thermal coal will correspondingly decrease. Especially since the beginning of winter, a "warm winter" has emerged, with a year-on-year decline in heating demand and a decrease in demand for coal for electricity. The total newly installed capacity of wind power and photovoltaics reached 358 million kilowatts, corresponding to an annual power generation of about 500 billion kilowatt hours, which is basically the same as the increase in electricity consumption in the whole society. New energy has a certain substitution effect on coal demand. The newly started real estate construction area has decreased by 23% year-on-year (the absolute value in 2024 is only one-third of that in 2020), resulting in a continued weak demand for non electricity coal.

2. Seasonal factors

The demand for thermal coal has obvious seasonal characteristics. After the peak demand for heating in winter, the demand for thermal coal usually decreases, and the price also decreases accordingly.

3. Policy regulation

The government's environmental policies and capacity regulation in the coal industry are also important factors affecting the price of thermal coal. In recent years, the Chinese government has vigorously promoted the development of green energy and restricted the expansion of high polluting and high-energy consuming industries. These policies directly affect the production and sales of the coal industry, leading to price fluctuations.

4. Impact on the international market

The changes in supply and demand in the international coal market will also have an impact on domestic thermal coal prices. For example, the decline in international coal prices will be transmitted to the domestic market through import channels, leading to a synchronous decline in domestic thermal coal prices.

Short term pressure: In the short term, the price of thermal coal will continue to be under downward pressure, influenced by loose supply and demand patterns and weak downstream demand

Long term stabilization: With the economic recovery and increased industrial production activities, the demand for thermal coal is expected to gradually rebound. At the same time, the introduction of government regulation policies will also have a positive impact on price trends

Supply side: The growth rate of total domestic coal demand in 2025 is expected to be around 1.1%-1.3%, with the overall supply declining year by year except for Xinjiang. The production growth rate of over 10% in Xinjiang is not in line with the actual situation, and there is no advantage in exporting Xinjiang coal after the price drops. In terms of imports, the import volume has exceeded 10% of the total demand, and any further increase cannot ensure energy security. The absolute import volume is likely to remain at around 500 million tons.

On the demand side: Although the demand side is relatively weak, under a series of policy combinations, such as a halt in the decline of real estate, strong manufacturing, and strong infrastructure development, it is relatively certain that the total demand for coal will remain above 1.1%.

In summary, the recent continuous and significant decline in the price of thermal coal is the result of multiple factors working together. In the future, the coal market will be influenced by multiple factors such as domestic and international economic situation, policy regulation, and the development of new energy, and the price trend will have uncertainty.

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