In not so good news for coal exporters to China, the country’s utilities are choosing domestic coal over imports as they are running out of annual import quotas.
This has supported the domestic thermal coal (NAR 5500kcal/kg) prices in China that has rebounded to RMB 558-560/t after touching a low at RMB 470/t, FoB Qinhuangdao basis in the first week of May’20.
According to the market sources, the country’s key utilities have exhausted their import quotas for the year after five months of record imports of seaborne thermal coal. China’s coal imports totalled 148.7mnt in the January-May period, up 16.8% y-o-y, customs data shows.
The country is curbing seaborne coal intake by enforcing import quota and quality restrictions on downstream users (such as utilities), because of which imports can take up to 90 days for clearance against 30 days previously, discouraging utilities to book imported material.
From 2017, China had started enforcing various degrees of import tightening measures for coal, as it targeted to make the domestic industry more self-sufficient. While the quota for this year has not been clarified yet, import volume of 270 MnT in 2017 has been taken as a reference. As per market sources, this year’s quotas are lower than previous years and that country is estimated to have utilise more than 55% of its quota for 2020.
Increase in hydropower output
China’s electricity generation had been down this year due to COVID-19-led lockdown in February and March. Although, the country’s power generation rebounded and is now operating at higher than pre-lockdown levels, flooding of rivers especially last week has once again posed threat to coal-fired electricity generation.
This is because, increased rainfall would lead to surged hydropower output. Coupled with disruption of economic activity especially in case of cement manufacturing (a key thermal coal using sector) this would further restrict the country’s coal consumption, thereby impacting its imports further.
Outlook
Indonesia and Australia are the two major coal-supplying countries that contribute to 90% of China’s total coal imports. Due to COVID-19, majority of the global countries are already dealing with disruption in economic activities, plunge in power demand as well as their coal requirements.
Now with China curbing its imports, the thermal coal sellers from both the countries will have to explore other export destinations, thus giving tough competition to coal offersespecially from South Africa, U.S., and Colombia.
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