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Monday, 29 June 20
CHINA COAL IMPORT OUTLOOK: MANY MOVING PARTS, FORECAST TO FALL 10% YOY - GHEE PEH | IEEFA
 China’s coal demand declined in the first quarter of 2020. According to the China National Coal Association, the country consumed 870mt in the first quarter of 2020, down 6.8%year-on-year. The power sector’s coal consumption fell 6.8%year-on-yearto 507mt,while construction sector usage fell 24.7% year-on-year to 65mt. Although the coal market remains volatile, industry observers estimate an average decline of 8% to 12% year-on-year in China’s coal demand. IEEFA currently estimates a 10% year-on-year fall in China’s 2020 coal imports, based on the following four key variables:
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Coal imports: From January to April2020,imports rose 27%year-on-year, but we note this is a function of lower prices.
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Domestic coal production: After declining year-on-year in January and February, output in March and April rose 6.4%and 6.0%year-on-year, respectively.
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Power generation: Thermal power generation declined 8.2%year-on-yearin the first quarter but rose 1.5%year-on-yearin April.
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Steel output: This increased 1.3%year-on-yearfor the first four months of 2020.
A detailed examination of China’s data, together with press commentary on the Chinese Government’s policy on coal imports, reinforces our view that caution is merited. According to media reports, China’s coal imports grew 22% year-on-year in April, and January to April 2020 imports increased 27% year-on-year, but the growth was boosted by lower prices for coal imports from Indonesia and Australia. The average April Newcastle benchmark price of US$56.2/tonne is 35% lower year-on-year.
According to media reports, China’s coal production experienced year-on-year growth of 6.4% in March and 6.0% in April. This growth is unsurprising as the National Energy Administration announced that China’s production had reached 83.4% of total coal mining capacity as of 3 March. The COVID-19-related disruption to China’s domestic coal output appears limited to January–February2020,when output declined 4.8%year-on-year, which is bad news for coal exporters to China. Additionally, 12 Chinese coal companies have called for a 10% cut in output from current levels to support domestic prices. The year-on-year growth in China’s domestic coal production would also tie in with government policy to impose an import quota this year that is set at 2017 levels, which are 10% below 2019 levels.
From January to April 2020, total Chinese power output fell 4.7% year-on-year, while thermal power output fell 5.9% year-on-year. In April, total power output grew 2.0% year-on-year, and thermal power output was up 1.5% year-on-year. From January to April 2020, 87 % of China’s thermal power capacity was from coal-fired plants, with the remainder from gas-fired facilities, according to the China Electricity Council. We note that even with the slight uptick in thermal power output for April, it is too early to suggest a sustained recovery in coal usage and imports.
China’s steel output serves as an indicator of economic activity. It rose1.3%year-on-yearfor January to April2020, indicating some stability. According to Mysteel Global, blast furnace capacity utilization rates at 163 mills rose to 85.6%, the highest rate in nearly 11 months, as of 15 May. However, against the backdrop of an increase in domestic coal production, this level of economic activity would still present downside risks for Chinese coal imports.
The outlook on government policy remains negative for exports to China, thanks to the coal import quota that seeks to maintain 2020 coal imports at the 2017 level of 270mt compared with 300mt in 2019. However, according to media reports, Guangdong and Fujian provinces used up the quota in the first four months of 2020. One positive sign for Indonesia’s exporters is the suggestion in media reports that China may reduce coal imports from Australia from July because of political tensions. Meanwhile, China’s coal producers have also been calling for government help. The China Coal Transportation and Distribution Association (the state-run representative body for domestic miners) has asked the National Development and Reform Commission to help restrict imports of cheap fuel. Additionally, 12Chinese coal producers have called for a 10% reduction in domestic coal output. Industry observers have estimated a year-on-year decline of 8–12%for China coal imports. This is in line with IEEFA’s conclusion that Chinese coal imports could decline 10%year-on-yearin 2020.
About IEEFA
The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. www.ieefa.org
About the Author Ghee Peh
Financial Analyst
Ghee Peh has worked in investment research since 1995, including at Jefferies, BNP Paribas, and UBS. He has covered Asian coal, cement and metal companies.
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Saturday, 01 August 20
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- Eastern Energy - Thailand
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- Bangladesh Power Developement Board
- Billiton Holdings Pty Ltd - Australia
- Bukit Makmur.PT - Indonesia
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- Sojitz Corporation - Japan
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- Bukit Baiduri Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Kalimantan Lumbung Energi - Indonesia
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- London Commodity Brokers - England
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- Orica Mining Services - Indonesia
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- Leighton Contractors Pty Ltd - Australia
- Ceylon Electricity Board - Sri Lanka
- Savvy Resources Ltd - HongKong
- Rashtriya Ispat Nigam Limited - India
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- Energy Link Ltd, New Zealand
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- Samtan Co., Ltd - South Korea
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- Economic Council, Georgia
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- Thai Mozambique Logistica
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- Parry Sugars Refinery, India
- Toyota Tsusho Corporation, Japan
- Meralco Power Generation, Philippines
- Australian Commodity Traders Exchange
- Mercuria Energy - Indonesia
- Ambuja Cements Ltd - India
- Binh Thuan Hamico - Vietnam
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- Central Electricity Authority - India
- Petron Corporation, Philippines
- SMG Consultants - Indonesia
- Kaltim Prima Coal - Indonesia
- Singapore Mercantile Exchange
- Formosa Plastics Group - Taiwan
- ICICI Bank Limited - India
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- The State Trading Corporation of India Ltd
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- Directorate Of Revenue Intelligence - India
- San Jose City I Power Corp, Philippines
- Dalmia Cement Bharat India
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- Maharashtra Electricity Regulatory Commission - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bulk Trading Sa - Switzerland
- Georgia Ports Authority, United States
- IEA Clean Coal Centre - UK
- Bahari Cakrawala Sebuku - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Oldendorff Carriers - Singapore
- Banpu Public Company Limited - Thailand
- Sinarmas Energy and Mining - Indonesia
- Electricity Generating Authority of Thailand
- Vizag Seaport Private Limited - India
- Chettinad Cement Corporation Ltd - India
- Mintek Dendrill Indonesia
- Indian Energy Exchange, India
- SN Aboitiz Power Inc, Philippines
- The Treasury - Australian Government
- Carbofer General Trading SA - India
- Eastern Coal Council - USA
- OPG Power Generation Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Romanian Commodities Exchange
- International Coal Ventures Pvt Ltd - India
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- CIMB Investment Bank - Malaysia
- IHS Mccloskey Coal Group - USA
- Sindya Power Generating Company Private Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Larsen & Toubro Limited - India
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- Edison Trading Spa - Italy
- Wilmar Investment Holdings
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- Price Waterhouse Coopers - Russia
- Offshore Bulk Terminal Pte Ltd, Singapore
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- Indonesian Coal Mining Association
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- Bank of Tokyo Mitsubishi UFJ Ltd
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