China coal imports tumble on new rules, India yet to take up the slack: Russell

Launceston, Australia (Reuters): China’s decision to impose fresh restrictions on imports of coal at some ports appears to have caused a sharp fall in inbound shipments of the polluting fuel.

The measures, announced on 16 April, included banning the unloading of imported coal at some ports and tightening customs clearances.

While it’s still too early to discern a definitive trend, China’s seaborne coal imports slumped to 3.45 million tons in the week ended 21 April, according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.

This was down almost 30% on the 4.92 million ton weekly average that was recorded from 1 January to 15 April.

It’s also lower than the weekly average of 4.45 million tons for seaborne imports in 2017.

It is possible that there are other factors at play in the slump in seaborne imports last week, including lower demand in the usually softer period between the northern winter and summer peaks.

But a decline of the magnitude seen last week suggests that the import restrictions had an immediate and profound impact.

It’s believed the authorities in Beijing took the steps to crimp some imports as part of efforts to boost domestic thermal coal prices and production.

Certainly, domestic thermal coal prices have benefited, with futures on the Zhengzhou Commodity Exchange jumping 9.8% last week to finish at 588.2 yuan ($93.51) a ton on 20 April, a three-week high.

Prices for seaborne thermal coal were more subdued, with Argus Media’s assessment of the 5,500 kilocalorie per kilogram (kcal/kg) grade at Australia’s Newcastle port dropping fractionally over the week to end at $69.65 a ton on April 20.

This grade of coal is generally preferred by Chinese buyers, because of its discount to the higher-quality 6,000 kcal/kg coal, which is more usually sought by utilities in Japan and South Korea.

Since peaking this year at $86.74 a ton in early February, cargoes of the 5,500 kcal/kg grade have dropped 19.7%, while those for the 6,000 kcal/kg are down by a more modest 12.4% from the peak in late February.

It would be logical to expect the discount of 5,500 kcal/kg supplies to widen further if China does continue to restrict imports of coal in coming months.

Falling prices would help open up India to Australia’s thermal coal supplies, although there is little sign yet that this is happening.

The bulk of coal supplied to India from Australia is higher-quality coking coal, used to make steel.

Further price declines needed?

Australian thermal coal cargoes generally struggle to find buyers in India given the higher price and transport costs when competing against supplies from the region’s other major exporters, Indonesia and South Africa.

But the recent price decline for Australian 5,500 kcal/kg cargoes may make them competitive against similar grade coal from South Africa.

Argus assessed 5,500 kcal/kg coal at South Africa’s Richards Bay port at $79.30 a ton, well above the $69.65 for coal at Australia’s Newcastle port.

Some of the difference will be eaten up by the longer sea journey from Australia’s east coast to India, but the likelihood is that Indian buyers may well be open to picking up any Australian cargoes that become distressed because of the recent Chinese restrictions.

However, coal prices may still be too high to attract significant Indian interest, given the South Asian nation generally is highly price sensitive and cuts back on imports when prices are strong, as they have been in recent months.

Vessel-tracking and port data show that India imported 44.8 million tons of all grades of coal in the first quarter, a monthly rate of 14.9 million tons.

This is below the monthly rate of 15.3 million tons for 2017, showing that while imported coal may well be needed in India, it’s probably still too expensive to be attractive.