China thermal coal prices rise after falling for 10 days

China thermal coal futures rebounded on Wednesday after falling for 10 days on an expected jump in fuel demand to meet heating needs amid forecasts for plunging temperatures.

China’s National Meteorological Center is predicting snowfall in the north and cold winds in the next two days that are expected to cause temperatures over the weekend to plummet in the northwest, southwest and most central and eastern regions.

The most-traded China thermal coal futures for January delivery closed up 8.86% at 978 yuan ($152.85) per tonne at 0700 GMT, rebounding after the contract nosedived over 50% off the record of 1,982 yuan hit on Oct. 19 after the government enacted a raft of measures to cool prices.

Prices year-to-date are up 39%.

China coking coal and coke futures also rose on Wednesday, closing up more than 12% and 7%, respectively.

“We believe strong heating demand and restoration of coal-fired power plants could be reason for this rebound after prices plunged from its historic high,” analysts from ANZ said in an email.

However, the analysts added that the Chinese government is vowing to lower prices, including a potential price ceiling, which could create downside risk.

They added that should China keep daily domestic output in the 11.5 to 12 million tonnes range along with monthly imports of 20 million to 25 million tonnes, this would be sufficient to meet additional winter demand.

Other analysts warned of more volatility potential in coal markets depending on controls issued by the government.

“For example, requiring some output to be reserved for domestic heating and power stations at lower prices will reduce the amount of coal available on the market, so if the winter is a cold one and demand exceeds expectations, another price spike could be in the cards,” Alex Whitworth, head of Asia Pacific Power and Renewables Research at Wood Mackenzie told Reuters.

China’s key power plants with direct connection to the state railway network were holding 19.1 days worth of thermal coal inventory by October-end, up 5.1 days from a month earlier, Chinese media cited China Railway Group as saying on Wednesday.

The railway group transported 122 million tonnes of thermal coal last month, 25% higher than a year earlier and 21% more than the previous month, Shanghai government-backed the Paper reported.

($1 = 6.3984 Chinese yuan renminbi)