With the advent of scorching summer in China this year, the Chinese government seems to have adopted a super cautious approach in an effort to mitigate any risk of a power crunch experienced back in mid-2021.
In a recent notice issued by the Customs Tariff Commission of the State Council, the government has decided to temporarily lift import tariffs of 3-6% on all types of coal from 1 May this year till March 2023.
China’s coal consumption
*Quantity in mnt
Market weighs on decision
As per market participants, the move is aimed at increasing the viability of imported coal in the market, so that in the case of any domestic coal shortage coal users in China can avail of imported coal at competitive rates.
Also, amid increased competition for imported coal, domestic coal prices would also remain within the reasonable range unlike October 2021 when prices had reached an all-time high of RMB 2,600/t ($395/t).
China’s imports from Russia may increase
The move is also seen as altering the country’s coal trade dynamics with more coal imports from Russia and Mongolia.
Ever since the Russia-Ukraine crisis began in late-February followed by the subsequent sanctions on Russia by the western countries, Russian coal sellers have been scrambling for newer destinations for coal exports.
Chinese buyers have taken advantage of the situation and are heard importing both thermal and coking coal at heavy discounts from Russia using the yuan-rouble payment system from mid-March.
In addition to Russian coal, Mongolian coal will also be available at competitive rates in China in the upcoming months.
Percentage-share of countries in China’s coal imports
Following the country’s unofficial ban on Australian coal imports in October 2020, Indonesia’s share has increased substantially.
However, the lifting of the ban is likely to have a limited impact on zero-duty Indonesian coal imports.
Impact on global coal prices
China’s tariff removal is also unlikely to have any major bearing on global thermal prices as sanctions on Russia would keep European coal demand high.
European countries are already buying high-CV South African and Australian coal, while low-CV Indonesian coal is mostly being diverted to India and Pakistan amid increased power demand due to the ongoing heatwave.
High-CV coal is being sold to Japan and Korea, trigerring the rise in Indonesian coal prices.
Leave a Reply