Chinese thermal coal buyers cautious in 2019

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The ongoing uncertainty surrounding China’s import quotas getting reset in January is casting mixed sentiments on the seaborne thermal coal market.

Outlook for the seaborne market turned more bearish as the country’s National Development and Reform Commission (NDRC) imposed further port restrictions on coal imports, after a meeting on November 14, to ensure this year’s total coal import volume does not exceed that of 2017.

There was no official announcement, but according to market sources, imported coal would no longer be able to clear customs until end of 2018.

As the year end approaches, there had been more inquiries for imported coal for January arrival as market players were expecting the quotas to be reset by then.

However, not all players were confident about the reset or the lifting of current import restrictions.

“We’ve not heard of any updates regarding the import policies,” a source close to NDRC told S&P Global Platts.

A source from the NDRC said no further information could be revealed at this time and reiterated that “total volume this year cannot exceed that of last year.”

China’s total coal import volume for 2017 stood at 271 million mt, while total coal imports from January to October this year had reached 252 million mt, according to official import statistics.

This would mean a remaining 19 million mt left for imports for November and December.

In October alone, China had imported a total of 23.08 million mt of coal, down from 25.14 million mt in September.

“We can’t be sure if the restrictions will be lifted by January,” a trader said, “but we might book more cargoes when the restriction is lifted,” the trader said.

“Traders are likely to use this time to maintain a good relationship with power utilities, so once restrictions are not as tight, they can start to purchase right away and don’t have to scramble for end-users,” a south China-based trader added.

END-USERS DELAYING LAYCAN

In view of the current import situation, end-users told Platts that they had delayed the laycan for previous purchases.

However, despite citing policy issue as a major risk, some end-users did not appear to have plans to change their import strategies for 2019.

A buyer said there were no firm plans avoid the seaborne market at the moment.

The buyer said it would need about 100 million mt of thermal coal per year, with spot cargoes and term contracts from the seaborne market accounting for about 10% of the total volume.

“We’ll probably still import as usual, but we will need to be cautious not to exceed the annual volume,” the buyer said.

He added that the import policy was still at its initial stage and the regulations would likely to be clearer next year.
Another end-user said imported coal amount to about 25% of its company’s total purchase.

“We will still run on term contract, as procurement of spot cargoes is very uncertain, but our import volume will likely be about the same as last year,” the end-user said.

MORE EMPHASIS ON DOMESTIC COAL MARKET

Various market sources, however, said that Chinese buyers would be very cautious in signing long term import contracts now, and some traders were heard to have cut down on the import volume for next year.

“We do not have firm figures, but our company might place more emphasis on domestic market next year to support the call from the State to buy domestic coal,” a northern China-based trader said.

Another trader said they would be taking a wait-and-see approach while hoping the demand to pick up as “policies are due to change”.

CHINESE MEDIA CALLS FOR STRICTER POLICY

In July 2017, China had imposed import restrictions on coal but the grip was relaxed in mid-December 2017 amid a harsh winter. The talk of restrictions was back again in April as some ports in southern China were faced with some form of import curbs.

There had been no official explanation for placing these restrictions. Chinese media and market players had cited various reasons, including cutting down the reliance on imports, as well as protecting domestic producers.

Some media had called for stricter policies to control imports of “lower quality coal” that would cause air pollution.

However, market participants said that China would not completely close its doors on imports as the seaborne market would continue to supplement the domestic market and serve as a mechanism to control domestic prices.

At an industry gathering in Beijing earlier this month, market participants expected China’s thermal coal consumption for 2018 to reach 3.2 billion mt.

According to the data from China’s National Bureau of Statistics, the country produced about 3.45 billion mt of raw coal in 2017.
The price of seaborne thermal coal in Asia had come under pressure in recent months as Chinese import restrictions bite.

The price of Indonesian 4,200 kcal/kg GAR coal — a grade popular among Indians, Chinese and other Asian nations, has slumped by almost 40% since the start of the year to be assessed Tuesday at $28.50/mt, S&P Global Platts data showed.

Meanwhile, the price of Australian 5,500 kcal/kg NAR coal hit a two-year low to be assessed at $58/mt FOB Newcastle on Tuesday.

Source: Platts

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