Drop in China coal imports a short-term blip

30th july 2018

China’s coal imports have slowed in recent weeks amid a temporary reduction in demand and a weaker currency, although the decline is likely to be “a short-term blip”, shipbroker Arrow said on 25 July. Provisional vessel-tracking data show coal departures from exporting countries to China in the first half of July fell more than 30% compared with the corresponding period last month, to around 600,000t/day, according to Arrow estimates.

Mr Burak Cetinok Arrow’s head of research told Montel that “If you look at coal arrivals in China in July, they are expected to rise by more than 21% versus June, to 27.4 million tonnes, but those ships were fixed 15-20 days before, or some even earlier.”

Mr Cetinoksaid that “Between 16-25 July, total volumes departing for China dropped to 420,000 tonne per day, which is a substantial drop,” noting however the final figure is generally revised retrospectively.

The country’s imports of coal and lignite soared 9% in the first half of this year to 145.5m tonnes, contributing to the Asia-Pacific benchmark Newcastle index averaging USD 103.87 per tonne in January-June, up by nearly 30% on the year.

Arrow attributed the rise in H1 in part to relatively low hydropower inflows, but it said stronger flows from rainfall in recent weeks have meant less need for coal-fired generation.

This has been reflected in Chinese coal prices, with the Zhengzhou September futures contract slumping by nearly 30% over the past month.

Lower demand

The shipbroker said in a research note that “Hydropower was disappointing earlier in the year, with the output rising only by 1% during the first half…however, heavy rainfall in recent weeks led to a surge in the outflow of the [22.5 GW] Three Gorges Dam, the biggest hydropower generator in China.”

And coal prices have been rising steadily at a time when yuan has been depreciating rapidly, eroding the attractiveness of the dollar-linked imported material.

Arrow said that “Since the beginning of June, as trade tensions between the US and China intensified, the CNY lost 6% of its value, catching some coal traders off guard.”

Over the same period, the Asia-Pacific benchmark Newcastle price surged by around 16% to more than USD 120 per tonne.

Furthermore, major power generators do not require any immediate increase in supplies amid relatively high stock levels, according to the shipbroker.

Arrow said that “However, this is likely to be a short-term blip [as] although CNY is expected to remain exposed to the developments in trade talks, consumption is still exceptionally high.” It added that “Once the market is balanced, Chinese buyers will return to the market.”

Source: MONTEL NEWS