Chinese coal exports plunge to 7 year low

Prices were mixed in regional markets, with some markets absorbing negative implications from the wider energy markets. API4, on a fob basis out of South Africa, fell 1.5% w/w to USD 118.3/t as of 11 July. API2, on a cif basis at ARA ports, declined 0.7% w/w to USD 123.5/t. In the Pacific Basin, the benchmark globalCOAL NEWC inched up 0.9% w/w to USD 121.5/t. According to traders, China and India were reportedly reluctant to buy last week in anticipation of further declines in prices. Global coal availability continued to improve with shipments from major ports further increasing.

Demand turns weaker
Although buyers from China and India helped support prices in the Atlantic market during late June-early July, they have been pulling back from the regional market since late last week on anticipation that coal prices could decline further from here on good availability worldwide. Traders dealing with China buyers reported that some utilities would only consider products with substantial price discounts this week. Anecdotal reports from industry sources suggest that coal availability in China’s domestic market has substantially improved from a month ago after utilities ramped up imports in May and June. The latest figures from the Chinese customs show that the country’s imports of all types of coal rose 12% y/y to 13.6mt in June. This represents an increase of 1.6% from May. Breakdowns will be available in the coming weeks.

Increasing shipments from China’s largest coal terminal, Qinhuangdao port, to domestic consumers also helped improve availability in the domestic market. According to port statistics, coal shipped from Qinhuangdao port rose to a daily record high level of 873,000t on 3 July, up 35% y/y. These figures suggest that China is unlikely to rush back to the offshore market in the near term. This will put downward pressure on the Pacific benchmark globalCOAL NEWC going forward.

Exports of all types of coal from China fell a significant 44% y/y to 710,000t in June, the lowest level since at least 2004. The country’s exports in H1-2011 fell 14% y/y to 8.75mt. China’s interest for exports remained weak as of 19 July, with no inventory available for exports at major terminal Qinhuangdao port for the fifth consecutive week. But we believe the drop in China’s exports has been factored in to prices.

China sets ceiling for domestic coal prices
In a meeting with local coal miners late last week, China’s top economic planner, the National Development and Reform Commission, asked major producers to keep prices for off-spec coal (5,500kcal) at less than CNY 850/t (USD 131/t) during JulySeptember. This price is the highest since October 2010. Although China’s domestic coal prices have been unchanged since 20 June, the government seems worried about possible hikes in coal prices going forward, as electricity demand rose further in many provinces over the last week. In central China, the grid operator expected
the consumption load to hit 128.83GW in the coming months after a record high of 111.81GW was reported on 5 July.

In eastern China, Shanghai hit a record high load of 25GW on 7 July, while Jiangsu and Zhejiang provinces are also seeing consumption race higher. We understand the control on coal prices is aimed at helping maintain power companies’ profitability, as electricity prices are set by the
government. However, we are sceptical about the effect of this price control going forward, as no meaningful punishment can be meted out to violators.