ANALYSTS at Wood Mackenzie are forecasting that thermal coal imports into China will increase in December boosting seaborne trade by some 20 million tonnes or more.
“Both the price for Indonesia coal and ocean freight have increased, too,” said Wood Mackenzie senior consultant Yu Zhai.
“We expect that thermal coal imports will increase in December as the National Development and Reform Commission wants to stabilise the price for QHD 5500 to below RMB600/t.”
The QHD price has stayed at above RMB600/t since late September. The market news is that the NDRC asked coal miners to increase supply at the end of September and that domestic supply increased in October to 336Mt, compared with 331Mt in September, or 325Mt last October.
But mine accidents in Shanxi, Shaanxi and Inner Mongolia have prevented output from increasing further, and the coal price has remained around RMB615/t.
In the meantime, coal imports have dropped to 14Mt in September, the lowest since May 2011. Part of the import volume cleared by customs in January was from the preceding December.
“We understand the NDRC wants to use imports as another tool to balance the domestic market,” Mr Zhai said.
“However, we do not think 20Mt of additional coal should be purchased for delivery to China in December.
“Firstly, it would cause both seaborne coal prices and freight to immediately spike, which is not what the Chinese government wants.
“Secondly, unloading imported coal in Chinese ports will not be easy anytime soon as we estimate the ports are full of imported coal yet to clear.
“Finally, coal generation in the coastal region is weaker this autumn than last because of strong hydrogeneration. The coal inventory is higher than last year, making it difficult for gencos to stock the imports flooding in,” Mr Zhai said.
The temperature in most of China in December will be warmer than normal, according to China Meteorological Administration. That will change in January, when it is likely to be colder than normal.
“We estimate that the gencos prefer to get more supply in later December or January, considering the current high inventory.
“As such, we estimate China will first clear the import cargos in ports that are over 10Mt, leaving roughly 10Mt of additional demand for seaborne products. We estimate the additional 10Mt imports will be distinguished from the normal purchase in the first quarter of 2021,” Mr Zhai said.
“However, not all the coal will be delivered to China in December. Instead, it should be spread over the winter period.”
Wood Mackenzie has adjusted its forecast for seaborne thermal coal imports from 9.5Mt to 20Mt in December under this scenario. This new figure is much higher than the 8.8Mt in September or the 17.7Mt average of the first nine months of the year.
“It will work to ease domestic prices and strengthen seaborne prices,” Mr Zhai said.