After two months of decline, China’s total coal imports rose sharply by 20% m-o-m to 25 mnt in July 2022, customs data shows. The sharp rise in imports was spurred by preference for cheaper Russian coal in the Chinese market, with imports from Russia reaching 7.5 mnt, the highest in the last five years.
Out of China’s total coal imports in July, the highest increase happened in the thermal coal segment, imports of which rose 41% m-o-m to 3.9 mnt. On the other hand, coking coal imports were recorded at 6 mnt, up 23% m-o-m.
Increased preference for Russian coal
With sanctions slapped on Russian exports by the European Union, Chinese traders seized the opportunity to book Russian cargoes at attractive prices. The country’s imports of Russian thermal coal stood at 2.7 mnt in July.
Russian 5500 kcal/kg NAR grade coal prices were sharply lower at $150/t CFR China by late July as against South African and Australian prices of similar grades which hovered above $200/t on FOB basis.
Record-high domestic coal output this year also incentivised traders to seek cheaper alternatives in Russian coal as a substitute for shipments from other origins, prices of which were higher amid robust European demand. Transactions of Russian supplies in yuan also supported the market sentiment.
As regards coking coal, China imported 2.01 mnt from Russia in July, up 18% m-o-m. Despite weak steel demand during the month, imports rose as traders were drawn to discounted Russian cargoes in anticipation that demand may pick up in the coming months.
Imports from other countries
The sharp rise in Russian thermal coal demand in China affected its traditional demand from Indonesia this year as July imports from the Asian supplier were at 92,000 t, down 63% since January. On a m-o-m basis, imports picked up as traders booked low-CV coal.
China’s coking coal imports from Mongolia also rose 22% m-o-m in July amid lifting of COVID-19 restrictions between the two countries. However, imports from the USA and Canada edged lower amid higher prices.
Short-term outlook
Russian coal is expected to gain prominence in the Chinese market as utilities in northern China have begun building inventory for the winter heating season. Heavy rainfall in major coal-producing provinces that disrupted output and drought in parts of the Yangtze river have affected hydroelectric power generation. These factors are expected to support China’s coal import demand in the coming months.
In addition, monetary policy changes and increased government stimulus may boost sentiments in the infrastructure and real estate sectors that are expected to drive steel demand. This may well keep China’s demand for Russian coking coal supported.
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