China's First-Half Coal Imports Surge, Indonesia the Winner: Russell
BY : CLYDE RUSSELL
JUNE 26, 2018
Launceston, Australia. China's seaborne coal imports are on track to have surged by around 14 percent in the first half of the year, with Indonesia emerging as the big winner among exporters.
Imports are likely to be around 126.6 million metric tons in the first six months of this year, up from 111.3 million tons for the same period in 2017, according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.
It also appears that June may be the strongest month so far this year, with 22.1 million tons discharged, or in the process of discharging, as of Tuesday (26/06).
The final figure may be slightly higher, at around 25.9 million tons: The data is filtered only to show ships that have already discharged, are discharging or awaiting unloading, and more cargoes may be handled in the final days of June.
The strongest month so far this year for China's coal imports from the seaborne market was March's 23.2 million tons, according to the data.
A look at the breakdown of where China is sourcing its coal reveals a surprise packet - Indonesia.
China has imported about 15.3 million tons more coal from the seaborne market in the first half of 2018 compared with last year. On a net basis, it's all from the Southeast Asian country.
Imports from Indonesia were around 61.8 million tons in the first half, up from 46.3 million for the same period in 2017.
The strength of shipments from Indonesia may raise some eyebrows among those who believe China is trying to lower air pollution from burning coal, partly by using less and partly by switching to higher-quality coal.
Indonesia's exports are predominantly lower-grade coal, typically with an energy value of 4,200 kilocalories per kilogram (kcal/kg) or less.
However, Indonesia's coal is also typically low in sulphur. That makes it useful for Chinese coastal power plants to blend with higher-sulphur domestic supplies or imports.
This allows them to lower emissions of sulphur dioxide and nitrogen oxide, albeit at a small penalty to the efficiency of the boiler.
It's also worth noting that Indonesian coal trades at a substantial discount to higher-quality thermal coal from main regional rival Australia.
Indonesian 4,200 kcal/kg coal, as assessed by Argus Media, was at $48.71 a ton in the week ended June 22. The weekly index for 6,000 kcal/kg coal at Australia's Newcastle Port was $116.27.
The discount of the Indonesian grade to Newcastle has widened substantially over the past year, going from 50 percent at the end of June 2017 to the current 58 percent.
While this is encouraging additional cargoes from Indonesia, it also means that Australian exporters are enjoying higher prices, even if their volumes are more or less the same.
China imported 42.84 million tons from Australia in the first six months of the year, fractionally higher than the 42.62 million tons in the same period in 2017, according to the vessel-tracking data.
Russia Up, United States Down
While Indonesia and Australia dominate supply to China, it's worth noting that Russia also managed to lift deliveries, with imports rising 27 percent to 10.3 million tons in the first half.
China's imports from the United States, which are predominantly coking coal used in steel-making, dropped in the first half to 2.09 million tons, a decline of 38 percent.
This occurred well before any potential impact of proposed Chinese tariffs on coal from the United States, which may be imposed as part of the escalating trade dispute between the world's two largest economies.
The decline so far this year in imports from the United States is more likely related to Australian coking coal being more competitive - and available, given the absence this year of major weather-related outages.
Overall, China's increased appetite for imported coal appears to be contributing to higher prices, with the Newcastle index up 12 percent so far, hitting a six-year high of $118.09 a ton in the week ended June 17.