Chinese coal imports to plunge in H2 – analysts
Chinese coal imports are likely to plunge in the second half of 2019 as customs officials face the prospect of exhausting their quotas from as early as September, analysts have told Montel.
The world’s biggest coal consumer imported 154m tonnes of the fuel over the first half of this year, up 6% year on year, customs data showed last Friday.
This leaves officials with a choice of curbing foreign purchases for the remainder of the year or violating a government target to limit import volumes to around last year’s level of 281m tonnes.
“We expect China will restrict imports in the second half of 2019,” said Yu Zhai, senior consultant for energy information specialists Wood Mackenzie.
Customs officials had already begun asking ports to restrict low quality coal imports in June, he said, adding he expected negotiations to yield tighter imports ahead.
Roughly 80% of China’s coal imports were thermal last year, with the rest metallurgical.
Thermal coal was likely to see the bulk of import curbs as it was easier to replace domestically, said Yu.
He estimated China would import 185m tonnes of thermal coal this year and that it had already received 108m tonnes. With just 77m tonnes to go, he saw imports falling sharply from September.
Too cheap to resist
“You have to have one eye on the domestic coal price,” said Glyn Lawcock, head of global mining for Swiss bank UBS.
China’s thermal coal imports were “all about managing the domestic balance”.
If Chinese coal prices fell too low due to foreign competition, domestic miners would face financial problems, said Lawcock.
On the other hand, utilities had only limited scope to pass on higher energy costs to consumers if coal prices rose.
China aims to keep prices between CNY 500-570/t and Beijing has signalled a willingness to introduce regulations if prices rise above CNY 600/t or fall below CNY 470/t.
The composite price of 5,500 kcal/kg grade coal traded at the port of Qinhuangdao eased slightly in June to CNY 580/t (USD 84/t), China’s National Bureau of Statistics said on Monday.
With Chinese coal costing nearly USD 20/t more than Asian sources, the arbitrage was likely to limit a fall in imports as buyers priced lengthy customs delays into their margins, Lawcock said.
“If it wasn’t for cheap prices in Asia, I think Chinese imports of coal could be down even more.”
The growth in imports in the first half of the year has taken place against the backdrop of a plunge in international coal prices. The Newcastle index, a 6,000 kcal/kg benchmark for Asia, last stood around USD 75/t, down roughly a quarter since the start of the year, according to Global Coal data.
“The bigger issue that has been impacting coal has been lower gas prices,” said Lawcock.
Cheaper gas in Europe and Asia – led by a glut in global LNG supply this year – has eaten into coal burn and even pressured European coal suppliers to send volumes to the Pacific.
That glut could be exacerbated later this year – despite a seasonal uplift in demand – if China’s appetite wanes.
“I think in the third quarter we will still see growth in imports, but in the fourth quarter there will be a big drop,” said Zeng Hao, an analyst for sxcoal.
He expected China to slightly grow its total coal imports this year to 290m tonnes – but this would still compel a 12% decline in volumes compared to the first half of the year.
“The only issue that can make China import more coal – say 300m tonnes – would be a too-high domestic thermal coal price. So that would mean a very cold winter,” Zeng said. “At the moment, nothing shows this winter will be very cold.”