China may extend coal import restrictions

14 Nov 18, 18:10 - Coal, Steam coal

Shanghai, 14 November (Argus) — The Chinese government may extend restrictions on coal imports until the end of February next year, according to market participants.

This could support domestic coal demand but will disrupt sales of seaborne coal scheduled to reach China in January-February.

The potential extension of import restrictions at most major ports could mean that imports from January 2018 until February 2019 — a 14-month period — should not exceed actual coal imports in 2017, market participants said.

The government-backed China national coal industry association and the general administration of customs (GAC) have separately agreed to reduce the 2019 import quota from this year's quota.

China imported 252.04mn t of coal in January-October, according to customs data. The imports were 11pc higher than in the same period last year. Imports up to October were 18.86mn t short of the 270.9mn t imported during all of 2017. This would imply that Chinese thermal coal buyers can import no more than 19mn t of coal between November 2018 and February 2019.

Chinese authorities have not confirmed the extension, but China's main economic planning agency the NDRC and the GAC may have addressed the restrictions in a meeting that started at 14:30 Beijing time (GMT 06:30) today in east China's Jiangsu province.

Major coastal power utilities, including Huaneng, Datang, Guodian and several other utilities were invited to the meeting to discuss coal imports this year. The NDRC and utilities also talked about the use of imported coal and "the implementation of measures to standardise coal imports", according to a notice issued by the Jiangsu industrial and information technology bureau yesterday. So far no official announcement from the meeting has been made.

Negotiations delayed

Many Chinese utilities have exhausted their 2018 import quotas.

Some trading firms booked late December cargoes and even January cargoes with the aim of clearing them through customs in 2019, to avoid being affected by the 2018 quota issue. But an extension could keep the door shut to these December and January cargoes.

A major state-controlled coal producer and importer has decided not to buy any imported material before the NDRC lifts the restrictions on imported coal. The importer has informed its imported coal suppliers to delay negotiations for 2019 term contracts, although it had signed initial agreements with several of the suppliers during the China International Import Expo held in Shanghai last week.

Demand softens

An extension to import restrictions would benefit domestic producers, at a time when demand has weakened.

Consumption at the six key coastal utilities — Datang, Guodian, Huaneng, Shangdian, Yuedian and Zhejiang Power — continues to remain below historical levels, averaging 500,000 t/day on 1-13 November. This was the lowest level of consumption in the period since at least 2015 and 105,000t lower than where they stood in the same period last year.

Because of lower consumption, combined stocks at the six utilities reached a historical high of 17.32mn t on 11 November, before declining slightly to 17.03mn t yesterday. Stocks at coastal utilities averaged 12.6mn t in November last year, while the average in the first 10 months of the year stood at 13.5mn t.

Coastal utility coal burn typically peaks in the summer, but edges higher towards the end of the year, with coal burn reaching a winter high in December.

Winter temperatures will continue to remain the key factor in determining the Chinese government's stance on import restrictions this year. And milder temperatures over the next month could rule out the need to import from the seaborne coal market.

Elsewhere, Australian coal's discount to Chinese domestic supply, which reflects the supply-demand balance in China's domestic market, stood at 62.97 yuan/t ($9.06/t) today, compared with Yn60.60/t on the same day last year and January-October's average of Yn48.73/t.

The main January contract on the Zhengzhou commodity exchange rebounded to an intra-day high of Yn628.60/t today, after two consecutive day-on-day falls this week amid high utility stocks. The contract closed at Yn622.80/t today, up by Yn19.60/t from yesterday.