China's cement prices increased sharply this month as activity resumed in the construction sector, potentially supporting domestic coal prices.
Cement producers in Zhejiang, Anhui, Jiangsu and Jiangxi provinces raised their asking prices for cement clinker by 20-30 yuan/t recently. The move came as construction projects restarted in various regions after the rainy and hot summer season in July and August. Higher cement prices are likely to raise the price that cement producers will pay for coal.
A few infrastructure and building projects were forced to suspend construction in July following floods in many parts of the country. Construction normally slows in summer to allow workers some time off during the hot afternoons. The recovery of construction this month is likely to have boosted cement demand.
Around 10 provinces ordered cement producers to suspend production for varying periods during June-September to reduce emissions from power use in the summer peak season. Many of them are due to restart before early September, also potentially raising demand for thermal coal.
China's cement production normally increases during September-November against July-August, the lull season for the construction sector. Cement output in September 2019 was 217.65mn t, up from 210.18mn t the previous month.
Firmer demand and tighter supplies are supporting domestic coal prices, with bids for NAR 5,500kcal/kg coal at around Yn556-558/t fob ports in north China today, while offers were around Yn560-564/t. This compares with the last Argus assessment of Yn558.08/t ($81.64/t) fob Qinhuangdao on 4 September.
Coal consumption by the construction sector, which mainly comprises cement and glass producers, was 50mn t in July. This was up by 2.4pc from a year earlier, making construction the second-largest thermal coal-consuming sector after power generation.
But firmer coal demand by cement producers is unlikely to raise demand for imported coal because of government restrictions. Almost all domestic cement producers were denied import quotas this year as Beijing put stricter curbs on coal imports compared with the past two years.
Chinese coal imports fell again in August because of tighter quotas, with last month's year-on-year decline steeper than in July. The imports, including anthracite, coking coal and thermal coal, reached an intra-year low of 20.66mn t in August, according to preliminary customs data. This was a 37pc drop from a year earlier, steeper than a 21pc year-on-year fall in July.
