China’s coking and thermal coal markets are set to tighten over the rest of 2020. Stringent import restrictions curb supply at a time of strong demand from heavy industry. Moreover, with the winter heating season about to kick in.
China is the world’s top coal consumer. Last week, it reportedly informed key buyers to avoid Australian coal. This is a part of a broader move to limit imports that also provoked the ”injured” trade ties between Beijing and Canberra.
Australia supplied over 40% of China’s total coking coal imports in 2019. It also supplied about 57% of its thermal coal.
Since 2018, Chinese authorities have tried to curb coal imports using an unofficial quota system. The system caps purchases in an effort to support domestic miners.
The measures have proved effective, with domestic prices since trending higher. Prices are currently approaching record premiums to international coal benchmarks.
Over the primary three quarters of 2020, China brought in 239.43 million tonnes of coal. That’s about 80% of 2019’s full-year total.
However domestic output has been slow to expand amid intensifying mine safety inspections. There had been over 100 coal mining accidents this year, and an ongoing campaign to shut outdated sites.
China: Unlikely to Become Self-sufficient in Coking Coal
It also has insufficient quantities of metallurgical coal, or coking, coal required by its massive steel sector.
Jefferies analyst Christopher LaFemina in a note that China is unlikely to become self-sufficient in coking coal. Domestic coking coal is generally low quality.
Some key coal consumption areas may face a supply crunch if imports remain tightly restricted, traders and analysts say.
Such areas include the northeast, where winter is about to set in. And then the south, where power plants are far from coal mining hubs.
A Beijing-based coal trader at a state-owned power plant said they have huge pressure to ensure sufficient coal supply during the winter season. But import quota is not enough, and domestic supply may not be adequate.
Analysts also expect stronger demand from heavy industry this winter. Beijing loosens emissions restrictions while it tries to spur economic growth.
A coal analyst from Huaan Futures, He Lei, calculates the looser environmental curbs could end in steel production cuts. They are cuts of about half the level seen last winter, or about 60,000 tonnes per day.
As of Oct 9th, the inventory of coking coal at major Chinese ports hit an 18-month low of 3.5 million tonnes. This was according to data compiled by Mysteel consultancy.
Thermal coal stocks are at around 10.9 million tonnes at four major ports in northern China. This is a level last seen in mid-June.
COMMENTS