A Chinese punch on Panamaxes
China’s decision to restrict its coal imports in 2019 below 2018 levels will dent demand for Panamaxes, but an ongoing tussle with Australia could be the silver lining.
The Chinese government plans to curb the country’s coal imports by 3%-4% in 2019, translating into a decline of about 10 million tonnes. Indonesia, Australia, Russia and Mongolia are the major coal suppliers, which together accounted for more than 95% of imports in 2018. Mongolian trade is over land, but the dip in trade from other key locations will be detrimental for Panamaxes. Assuming no change in the sourcing pie in 2019, annual seaborne trade could decline by 8.6 million tonnes rendering more than 10 Panamaxes unemployed.
At the same time, we expect to see some changes in trade patterns because of ongoing political differences between China and Australia, resulting into delayed customs clearance of the latter’s coal cargoes. Although the Dalian custom authority – which handles around 14 million tonnes of annual coal imports – has stopped giving clearance to coal imports from Australia, we believe this matter will soon be settled.
In 2019, Drewry therefore expects Australia coal exports to China to be in the region of 71-72 million tonnes, compared with 89 million tonnes in 2018.
In turn we expect any decline in coal imports from Australia to be partly offset by overland imports from Mongolia. If Mongolian exports to return to peak of 36-37 million tonnes, this will leave China with a deficit of 12-13 million tonnes, which it could result in increase in trade with North and South America. As the voyage distance between China and North America is almost three times that of Australia to China, increased coal imports from latter will more than offset the loss in vessel employment, deploying about 15 additional vessels compared with 2018.