Qinhuangdao port inventories up, limited upside to coal prices from here:
· Qinhuangdao coal inventory rose 12% WoW to 4.5mt this week and prices were flat WoW at Rmb585.
· This coincides with the end of Daqin railway's maintenance works which has partially disrupted transportation volumes.
· The pickup in stocks is in line with previous thesis that low port inventories were a result of specific transportation issues and not a significant rebound in end demand.
· We think the upside for coal spot prices are limited from here, despite the gradual pickup in demand that is expected in 2H09.
· The coal market remains in surplus on a capacity-to-demand basis with estimates ranging from 100-400mt.
· YTD coal supply and demand has remained in balance largely because of stronger-than-expected supply side discipline -- however this alone is not enough to drive prices up further, in our view.
· While the coal stocks remain attractive on fundamental terms, the thermal coal stocks under our coverage all look expensive at current valuations and we think upside is limited.
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