The perspective of a dealer who makes his living from coal

Coal prices continue to rise, rooted in supply and demand. It is already common knowledge to release coal production capacity to ensure demand. Demand is rigid, and we can only look at the supply side. What's the next trend for coal prices?

From January to July 2021, domestic production of raw coal was 2.26 billion tons, a year-on-year increase of 4.9. The average monthly production of raw coal in the first seven months was 334 million tons, and the average monthly production in 2020 was 320 million tons. Coal production increased by nearly 5%. But even so, coal prices are still rising, indicating that coal is still in short supply. It shows that the demand for coal is rigid.

Continue to increase production and ensure supply, and wait for coal prices to stabilize. Continue to release production capacity. Before that, coal prices will go crazy for a while.

The highest coal price in history has also made coal mines very profitable. This makes coal production mines, which have been disadvantaged for many years, feel proud. Where raw coal is produced, coal mines are indeed ensuring supply. However, there are also some factors that affect the release of coal mine production capacity. Let’s pick two and talk about them.

First is safety. Just by looking at the news, we know that there seem to be more coal mine accidents this year than in previous years. It cannot be said that efficiency and safety cannot be balanced, at least they have an impact. No matter which coal mine you go to, the slogan "Safety First" is always eye-catching. Increased production must also ensure safety. Nowadays, the efficiency of the coal mine is so good that the annual production and operation targets are expected to be exceeded. Without particularly strong motivation, coal mines will not desperately increase production.

Secondly, there is the limit on approved production capacity. For example, the approved production capacity of a coal mine is 10 million tons. This is the annual production capacity of coal mines determined by various departments. The maximum annual production capacity is 10 million tons of raw coal. If I produced 7 million tons in the first seven months, and it is impossible to produce 10 million tons in the next few months, my coal mine should stop production and close down! I have to balance production, right? Maybe raw coal production will drop in the next few months.

The state has policies that allow some coal mines to appropriately increase production based on their approved production capacity. However, not all mines can increase coal production without scruples. Therefore, increasing coal production and ensuring supply cannot be achieved overnight. This also continues the phenomenon of coal prices rising instead of falling. We continue to wait for the follow-up policy to ensure coal supply.

Feng Ge’s point of view: The allocation of coal production capacity indicators in recent years has solved supply and production management problems from the source, and effectively alleviated the current situation of some coal mines that pursue production and ignore safety. , also balances the supply and demand levers. However, with the impact of the epidemic on the world economy, China's demand for coal is rigid. However, the total amount of imported coal from abroad has dropped significantly. Domestic coal production companies have also reduced production due to restrictions on indicators and carbon reduction. Both supply and demand have One minus and one plus at a time, leading to the protagonist who demonized coal and shouted out coal, instantly increased his worth, and demand exceeded supply. The ensuing transportation and storage also took the opportunity to increase prices. Ultimately, enterprises that demand coal at the downstream end are suffering. Coal prices are high, coal is difficult to buy, and high-quality coal is even more difficult to obtain. Due to the impact of volume, heating companies rarely have long-term contracts. Traveling around to dig for resources has been the main work status of the bosses of heating companies recently, and it is also the real situation of many coal dealers.