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Market News Thermal coal prices have fallen from a high level, supply is expected to rise and demand is coming to an end in the off-season

Thermal coal prices have fallen from a high level, supply is expected to rise and demand is coming to an end in the off-season

After many consecutive days of skyrocketing, coal-based futures recorded a high fall on Friday, and the main continuous contract for thermal coal fell by 5%. After the previous high coal prices triggered the commodity market linkage effect, the regulatory authorities have stepped in to strengthen the "supply protection" expectations began to heat up, and the seasonal off-season of coal demand is finally coming, so the bulls rallied. Arbitrage, and the unilateral rise in coal prices has temporarily come to an end.

2021-09-10
10183
After many consecutive days of skyrocketing, coal-based futures recorded a high fall on Friday, and the main continuous contract for thermal coal fell by 5%. After the previous high coal prices triggered the commodity market linkage effect, the regulatory authorities have stepped in to strengthen the "supply protection" expectations began to heat up, and the seasonal off-season of coal demand is finally coming, so the bulls rallied. Arbitrage, and the unilateral rise in coal prices has temporarily come to an end.

The key news that triggered the reversal of market sentiment is that the China Coal Transportation and Marketing Association released a report within the day to further comfort the market sentiment, saying that since August, the effect of domestic coal production and supply guarantee policy has gradually emerged, and coal production continues to improve. At the same time, after the high temperature weather has gradually subsided, the characteristics of the peak season of thermal coal consumption have also weakened, and the market supply and demand situation has improved significantly, and the price increase has slowed down.

The panic that caused coal prices to rise before has come from both supply and demand. On the one hand, domestic coal companies have experienced the environmental protection and safety supervision inspection storm before, and their production capacity has yet to be restarted. On the other hand, mines in Henan, Shanxi and other places have experienced summers. After multiple rounds of heavy rains and water damage, further repairs are needed. Coal imports in the international market have been blocked by the epidemic in importing countries such as Mongolia, Vietnam, and Indonesia, and the cost of seaborne imports continues to be high. This coincides with the peak demand in the summer, causing a huge supply gap, and coal storage in power plants has fallen to a dangerous boundary. So the bullish momentum rose further.

In addition, this year's hot weather in the southern region lasted until early September. At the same time, hydroelectric power generation was once restricted due to drought, which also caused the demand for electricity and coal to increase unabated. However, the latest news shows that, on the one hand, Mongolia's coal imports, which had been suspended for two weeks, will resume soon, and on the other hand, no matter as scheduled, further cooling of the weather will eventually be the general trend. This, along with the prospect that imported coal will soon be concentrated and accelerated to shore, will calm the anxiety of the market for a considerable period of time and limit the price of thermal coal from rising too quickly.

The news also shows that in mid-September, open-pit coal mines with an annual production capacity of nearly 50 million tons will be approved for continued land use, and these coal mines will gradually resume normal production. Afterwards, as coal mine procedures are processed and the process of nuclear increase in production capacity accelerates, the policy measures for increasing coal production and supply will be further implemented and show effects, so that coal production will re-enter the trend of stable growth to coincide with the continued growth of the economy.

The negative effects of factors such as safety and environmental protection that previously restricted coal production capacity will gradually fade out. Therefore, the previous exercise inspection, which had an immediate and huge impact on production capacity, will be transformed into a long-flowing, normal and efficient management. The elimination of outdated production capacity will become a long-term process, which will positively drive production rather than continue to suppress it. In addition, after the blowout at the beginning of the year, the supply price in the global market will return to a reasonable range as the Federal Reserve's monetary policy gradually normalizes.

At the same time, September-October is the off-season of coal consumption. As the temperature drops, the coal consumption level of power plants will drop significantly. The meteorological department predicts that there will be more precipitation in many parts of the country in September, and hydropower output is expected to increase. The substitution effect of will be enhanced. And "carbon reduction" and "dual control of energy consumption" continue to restrict production in some industries. Affected by this, production in the steel, building materials, and chemical industries will continue to be restricted, and coal demand in related industries may decline.

On the whole, with the accelerated release of coal production capacity in the main producing areas, it is expected that coal supply will continue to grow in the future, coal demand will be weakened, the supply and demand situation of the coal market will continue to improve, and the market coal price will fall. However, the outlook for economic activity is still healthy, and power plants will start to supplement coal-burning operations in the winter, which will still support the increase in coal prices and prevent an excessive fall in the period. There is a high probability that the thermal coal market will return to the level of 850-950 yuan ton earlier this year and begin consolidation again.
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