China’s thermal coal futures soared more than 6% on Wednesday, hitting a level last seen in late November as investors grew concerned over tight supply ahead of a national holiday when coal mines typically slow operations or shut down.

The most-active thermal coal futures contract on the Zhengzhou Commodity Exchange CZCcv1 traded up 6.6% at 774.8 yuan ($122.06) a tonne.

The rally is in line with the upward trend on the spot market, with benchmark prices for 5,500 kilocal coal at northern ports having gained 18% so this year to 935 yuan a tonne as of Tuesday, data tracked by China Coal Transportation and Distribution (CCTD) showed.

“Despite steady operations at big coal mines, a few small-sized mines have shut down for holiday in the major mining province of Shaanxi,” said analysts from Huatai Futures said in a note, adding that supply was tight at ports.

Private firms in China, including coal mines, typically shut down one week or more ahead of the Lunar New Year, kicking off on January 30 this year and when hundreds of millions of workers travel back to their hometowns.

Coal inventories at coastal ports fell to their lowest level since early October at 47.82 million tonnes this week, CCTD data showed, although the current level remains higher than the same period last year of 44.89 million tonnes.

Meanwhile, a cold snap is expected to hit northern China during the week of Lunar New Year celebration, which could drive up coal consumption at utilities.

In the near term, power plants have strong incentives to build up stockpiles as domestic coal output tends to drop sharply in the first quarter while a partial ban on coal exports from Indonesia remains in place, said the Huatai analysts.

Indonesia, the world’s biggest thermal coal exporter, implemented a ban on Jan.1 to avoid widespread coal outage but has since then allowed 48 coal vessels to depart.

However, analysts and traders expect consumption from industrial users to ease as the holiday approaches, and China’s government can also order state-owned mines to maintain normal output during the Lunar New Year.

Source: Reuters