NEWS & ANALYSIS
China coal import limit hits coastal power plants
A restriction on unloading of coal imports at several Chinese ports will hit power plants with combined generating capacity of at least 21GW.
Chinese authorities have banned at least 10 coal unloading terminals in the regions of Guangdong, Fujian, Guangxi and Shanghai from receiving imported coal, according to market participants working with coastal power plants in the country. The limit was announced last week, came into force on 1 July and will continue until 31 December.
The terminals include four in Fujian province, three in Guangxi autonomous region, two in Guangdong province and one in Shanghai. An additional terminal in Hainan province — which serves utility Guodian's 700MW Hainan Southwest power plant — will only be able to unload imported coal once it has cleared its cargo 150-200km along the coast at Sanya port customs, a trader said.
Chinese authorities have made no official announcement on the ban, and may refrain from doing so given that any formal import restriction could contravene the country's obligations as part of its WTO membership. As such, the terminals may not represent the entirety of the port restrictions.
But even these ports alone are likely to restrict loadings for the around 21GW of coal-fired power generating capacity that they supply. The power plants that are directly linked or located near the ports include the 2.82GW Shidongkou complex in Shanghai, investment company SDIC's 3.36GW Qinzhou plant in Guangxi region, and CLP Group's 2.58GW Fangchenggang Qisha power plant in Guangxi.
Power plant operators may find ways to continue receiving imported coal. In many cases only specific terminals within larger port complexes face restrictions, meaning that they could receive coal at nearby ports and then rail or truck it to the plant. But high trucking costs will probably rule this option out for many utilities whose profit margins were already slim at current coal prices. Such difficulties may lead some to stop importing for the duration of the ban.
Assuming coastal power plants run at a load factor of 60pc and a 38pc efficiency, and blend lower-heat GAR 4,200 kcal/kg coal with domestic coal at a 50:50 ratio, the 21GW of capacity would use around 30mn-35mn t/yr of imported coal. Based on higher-heat NAR 5,500 kcal/kg coal, the restrictions could mean a loss of around 20mn-25mn t/yr.
Over their six-month implementation, this means the restrictions would hamper delivery of 11mn-17mn t of thermal coal — equivalent to around 6-10pc of 2016's total lignite, sub-bituminous and bituminous thermal coal receipts. Chinese authorities have told coal suppliers that the restrictions would inhibit 15mn t of imports this year, according to market participants.
Immediate effect
Several buyers in south and east China have already cancelled thermal coal cargoes — particularly of Indonesian coal — since the middle of last week. Some have withdrawn tenders for imported product. One Beijing-based power generator has stopped buying imported shipments for its Fujian province power plant, whose associated wharf has been forbidden to handle imported coal.
Beyond the impact on the directly-affected ports, the restrictions have added to uncertainty surrounding China's wider coal import policies. Authorities have faced increasing pressure from domestic mining lobbies to restrict imports at a time when China is closing many of its own coal operations — even though tight supplies mean that spot NAR 5,500 kcal/kg coal prices in China are close to a 600 yuan/t ($88.22/t) cap that the government has sought to implement.
China's central economic planning agency the NDRC over the past year has repeatedly hinted that it would restrict imports, and has instructed some state-run utilities to stop taking foreign coal. Trace element restrictions, intensive customs checks and long testing periods have already delayed the unloading of cargoes to several weeks, adding to importers' costs.
If buyers opt not to take imported coal, sellers may find it difficult to find alternative markets. The two dominant thermal coal products that Chinese power plants import — Australian high-ash NAR 5,500 kcal/kg and Indonesian lignite and sub-bituminous coal — have limited alternative markets. Sellers of the Australian coal may turn to South Korea and Taiwan, although these markets tend to secure tonnage on longer-term supply contracts. Indonesian sellers may look to India. But that market remains limited amid strong domestic coal production and a prolonged slowdown in the cement industry.
The terminals include four in Fujian province, three in Guangxi autonomous region, two in Guangdong province and one in Shanghai. An additional terminal in Hainan province — which serves utility Guodian's 700MW Hainan Southwest power plant — will only be able to unload imported coal once it has cleared its cargo 150-200km along the coast at Sanya port customs, a trader said.
Chinese authorities have made no official announcement on the ban, and may refrain from doing so given that any formal import restriction could contravene the country's obligations as part of its WTO membership. As such, the terminals may not represent the entirety of the port restrictions.
But even these ports alone are likely to restrict loadings for the around 21GW of coal-fired power generating capacity that they supply. The power plants that are directly linked or located near the ports include the 2.82GW Shidongkou complex in Shanghai, investment company SDIC's 3.36GW Qinzhou plant in Guangxi region, and CLP Group's 2.58GW Fangchenggang Qisha power plant in Guangxi.
Power plant operators may find ways to continue receiving imported coal. In many cases only specific terminals within larger port complexes face restrictions, meaning that they could receive coal at nearby ports and then rail or truck it to the plant. But high trucking costs will probably rule this option out for many utilities whose profit margins were already slim at current coal prices. Such difficulties may lead some to stop importing for the duration of the ban.
Assuming coastal power plants run at a load factor of 60pc and a 38pc efficiency, and blend lower-heat GAR 4,200 kcal/kg coal with domestic coal at a 50:50 ratio, the 21GW of capacity would use around 30mn-35mn t/yr of imported coal. Based on higher-heat NAR 5,500 kcal/kg coal, the restrictions could mean a loss of around 20mn-25mn t/yr.
Over their six-month implementation, this means the restrictions would hamper delivery of 11mn-17mn t of thermal coal — equivalent to around 6-10pc of 2016's total lignite, sub-bituminous and bituminous thermal coal receipts. Chinese authorities have told coal suppliers that the restrictions would inhibit 15mn t of imports this year, according to market participants.
Immediate effect
Several buyers in south and east China have already cancelled thermal coal cargoes — particularly of Indonesian coal — since the middle of last week. Some have withdrawn tenders for imported product. One Beijing-based power generator has stopped buying imported shipments for its Fujian province power plant, whose associated wharf has been forbidden to handle imported coal.
Beyond the impact on the directly-affected ports, the restrictions have added to uncertainty surrounding China's wider coal import policies. Authorities have faced increasing pressure from domestic mining lobbies to restrict imports at a time when China is closing many of its own coal operations — even though tight supplies mean that spot NAR 5,500 kcal/kg coal prices in China are close to a 600 yuan/t ($88.22/t) cap that the government has sought to implement.
China's central economic planning agency the NDRC over the past year has repeatedly hinted that it would restrict imports, and has instructed some state-run utilities to stop taking foreign coal. Trace element restrictions, intensive customs checks and long testing periods have already delayed the unloading of cargoes to several weeks, adding to importers' costs.
If buyers opt not to take imported coal, sellers may find it difficult to find alternative markets. The two dominant thermal coal products that Chinese power plants import — Australian high-ash NAR 5,500 kcal/kg and Indonesian lignite and sub-bituminous coal — have limited alternative markets. Sellers of the Australian coal may turn to South Korea and Taiwan, although these markets tend to secure tonnage on longer-term supply contracts. Indonesian sellers may look to India. But that market remains limited amid strong domestic coal production and a prolonged slowdown in the cement industry.
This analysis was published in Argus Coal Daily International.
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