Amid Challenges, China Witnesses Uptick in Thermal Coal Imports

China's thermal coal imports are projected to experience a slight increase in August, as international prices for this key power-generation resource maintain competitiveness due to limited domestic supplies.

Data compiled by commodity analysts Kpler suggests that around 28.95 million metric tons of thermal coal are anticipated to arrive at Chinese ports this month, marking a rise from July's 28.8 million tons and representing the highest level since May.

Starting from March, monthly seaborne imports of thermal coal have consistently surpassed 28 mmt, excluding a slight dip to 27.63 million tons in June, as per Kpler's data.

In contrast, during the entirety of 2022, seaborne thermal coal imports exceeded 24 mmt only once, which occurred in November. Additionally, these imports remained below the 20 million mark for eight out of the twelve months.

The robust demand for imported coal aligns with the growth in thermal power generation, marked by a record-breaking production of 600 billion kilowatt-hours (kWh) in July. This figure represents a significant increase from the 556 billion kWh generated in the same month of the preceding year.

Simultaneously, hydropower generation faced a decline, reaching 121 billion kWh in July, down from the 146 billion kWh registered during the corresponding period in the previous year. Beyond the surging demand for coal-driven power generation, China's domestic coal production has encountered setbacks, with daily output plummeting to a nine-month low of 12.18 mmt in July.

The coal production for July totalled 377.54 million metric tons, representing a 6.3% drop compared to the previous month. This decline coincides with China's intensified focus on mine safety inspections.

As a result of the dwindling domestic production, China's internal thermal coal prices have witnessed a gradual uptick. On August 28, SteelHome assessed the benchmark price at the Qinhuangdao port at 835 yuan ($114.54) per metric ton, reflecting an 8.4% rise from the 2023 low of 770 yuan per metric ton recorded on June 5.

It's worth noting that China has resumed the import of Australian thermal coal, ending an unofficial ban that had been in place since mid-2020 due to political tensions with Australia. Chinese utilities prefer the lower-energy Australian coal, and the price for 5,500 kilocalorie per kg (kcal/kg) cargoes at Australia's Newcastle Port has seen a decline to $84.35 per metric ton in the week ending August 25.

These price levels are 38% below the peak of $135.29 observed earlier this year in late January. In August, China's imports of Australian thermal coal are estimated at 4.89 mmt, down from a three-year high of 5.41 million tons.

Imports of thermal coal from Australia have consistently remained above 4.8 mmt since April, as indicated by Kpler's data. These figures have effectively returned to the levels seen before the 2020 ban, a time when Australia stood as China's second-largest supplier after Indonesia.

Moreover, China's imports from Indonesia have experienced an uptick in August, with Kpler forecasting arrivals of 18.81 mmt, which would mark the highest level since May.

Chinese utilities traditionally favor lower-energy Indonesian coal, which is widely blended with domestic supplies due to its low ash and sulfur content.

The price of Indonesian coal with an energy content of 4,200 kcal/kg ended last week at $50.38 per metric ton, representing the lowest price this year and a 42% decrease from its peak of $87.55 recorded during the first week of the year.

Given the ongoing dynamics of constrained domestic output, robust demand for coal-fired power, and the favorable price differential of seaborne cargoes, it seems likely that China will continue importing thermal coal at elevated levels, even when import duties are imposed.