As of the end of 2017, the nation’s total coal mine production capacity stood at approximately 5 billion tons per year, of which the effective capacity—i.e., the capacity that has already been established—was around 3.9 billion tons per year. The capacity of coal mines currently under construction and undergoing technological upgrades was roughly 1.1 billion tons per year. Based on the progress of ongoing construction and technological upgrades, it can be estimated that by 2020, the nation’s coal mines with production capabilities will see a net increase of at least 300–400 million tons per year compared to the current level. At that time, the nation’s effective coal mine production capacity will reach at least 4.2–4.3 billion tons per year. Adding to this the import volume of about 200–300 million tons, the nation’s total effective coal supply capacity in 2020 will reach approximately 4.5 billion tons. It is projected that by 2020, the nation’s total coal demand will range between 3.6 and 3.8 billion tons.

　　As a result, by that time, the total effective supply will still exceed the expected demand by 18% to 25%. The overall issue of coal overcapacity will persist, and in some local regions, the problem of overcapacity is likely to remain particularly acute.

　　China Coal Price Analysis

　　Driven by vigorous efforts on the supply side and coupled with a shift in demand from negative to positive, according to data released in the "Trend Analysis Report on the Coal Industry and Investment Decisions" by the Qianzhan Industry Research Institute, coal prices have surged significantly—from a low of 345 yuan per ton before the supply-side reform to 741 yuan per ton in November, representing an increase of 115%. As for coal prices at coastal ports for 5,500 kcal coal, there are currently several different classifications. For ease of analysis, we divide them into three categories: spot coal prices, long-term contract coal prices, and the Bohai Rim Index coal price. The spot coal price is the coal price we typically track and monitor; its daily prices are publicly announced. Within the industry, the Qinhuangdao Port 5,500 kcal power coal price is generally used as a reference.

　　Judging from price trends, it can be said that coal prices remained remarkably stable throughout 2017. In stark contrast to the significant price increases seen in 2016, the Bohai Sea 5500 kcal/kg thermal coal price index (BSPI) in 2017 stayed essentially steady between 560 and 610 yuan per ton.

　　Specifically, from the beginning of 2017 to early May, the price of power coal with a calorific value of 5,500 kcal/kg in the Bohai Rim region fluctuated at a high level of around 600 yuan per ton. In just two weeks—from mid-to-late May—affected by a combination of factors—including the end of the northern heating season and the temporary absence of the peak summer supply period—coal prices dropped to about 563 yuan per ton, a decrease of roughly 40 yuan per ton, or 6.8%. Subsequently, from mid-to-late June, prices quickly rebounded to around 580 yuan per ton and have since been fluctuating slightly around that level, indicating that the national coal market has remained generally stable.

　　Reasons for Large Fluctuations in Coal Prices

　　The reasons include the continued decline in the share of spot coal, widening price discrepancies across various links in the supply chain, a temporary drop in daily coal consumption around the Dragon Boat Festival, and the ongoing accumulation and rise in port inventories.

　　Specifically, as production and transportation of long-term contract coal and affordable coal increase, the proportion of spot coal in the Bohai Rim market continues to decline. Given that long-term contract coal and affordable coal feature stable pricing mechanisms, the impact of spot coal prices on the market continues to weaken, and the supply structure of regional markets provides support for stabilizing coal prices.

　　Recently, price trends across various segments of the coal industry chain have become increasingly divergent, and the phenomenon of “price inversion” has rebounded. Supported by seasonal demand, coal prices at producing regions have remained stable with a slight upward trend around the Dragon Boat Festival, while price movements at shipping ports and receiving ports have begun to diverge. On the one hand, this limits the room for further declines in port coal prices; on the other hand, it also dampens the enthusiasm of some traders to ship and receive coal. The decline in trading activity in the coal market has pushed port coal prices into a phase of stalemate.

　　Moreover, around the Dragon Boat Festival, energy consumption for industrial production and residential electricity demand remained relatively stable, leading to a temporary decline in daily coal consumption at coastal power plants. This provided an opportune window for power plants to replenish their inventories. As of June 20, the total coal stocks held by the six major coastal power companies had approached 14 million tons, and the number of days’ worth of available coal had rebounded to around three weeks, somewhat easing market sentiment. Recently, coal stocks at port terminals have continued to accumulate steadily. As of June 20, coal stocks at the three ports in the Bohai Rim (Qinhuangdao, Tangshan, and Cangzhou) remained above 20 million tons; meanwhile, coal stocks at ports along the southeastern coast and inland river terminals exceeded 35 million tons, continuously breaking previous records. The “stabilizing” role of high port inventories continues to strengthen, which is also a key factor behind this week’s stubbornly flat coal price trend.

　　Demand for thermal coal continues to improve.

　　In June, the National Energy Group took the lead in capping the long-term contract prices for externally purchased coal at no more than 600 yuan per ton. Several coal groups, including Shanxi Coal and Chemical Industry, China National Coal Group, and Yitai, quickly followed suit by issuing trading rules that set reasonable price ranges for coal, bringing a touch of cooling to the currently booming thermal coal market.

　　Against the backdrop of continuously improving demand for thermal coal, the coal market supply is currently in a phase of tight balance. As a result, coal prices remain relatively high. However, given the ongoing introduction of policies by the Chinese government aimed at stabilizing coal market prices, it is expected that coal prices will either stagnate or experience a slight decline in the later period.