CHINESE COAL IMPORTS BAN ON AUSTRALIAN COKING COAL IS FAVORABLE TO CHINA'S DOMESTIC COKING COAL LEADERS
The Chinese coal imports ban on Australian coal issued by the Chinese government will create a significant supply gap in the coking coal market, favoring China’s domestic coking coal leaders.
Australia is the second largest source country for Chinese coal imports. Chinese coal importers imported 76.95 million tons of coal from Australia in 2019, accounting for 25.7% of China’s total coal imports. Chinese coal imports during the 2020 epidemic opened up many importers of coal to import coal from Australia to ensure supply.
The share of China’s largest coal importer in the world imports from Australia further increased to 32%. Of the total collection of 2.67 billion tons of Chinese largest importer of coal imports accumulated in August, Chinese thermal coal buyers imported 2.6% of their coal from Australia. Thus, China’s ban on Australian coal imports will cause a relatively noticeable gap in the supply of the Chinese largest importer of coal imports.
A portion of the opening may be shifted to other coal exporting countries such as Indonesia, Mongolia, Russia, etc. As China is the largest importer of coal in the world, considering the continued strict coal import policy, the central portion of the Chinese coal import gap will be filled by Chinese domestic sources instead.
As Australian coal imports have a significant impact on coking coal supply, the Chinese coal imports ban provides room for growth in coking coal industry sales; at the same time, the tightening of China’s coal imports will also stimulate China’s domestic coking coal prices to rise, and the improvement in both volume and price may benefit trained coking coal leaders.
Chinese coal imports status: Chinese coal imports gradually grew after supply-side reform, and Chinese coal imports were tightening within 2020. From the supply-side reform of the coal industry in 2016, Chinese coal imports entered a new growth phase.
The total amount of Chinese coal imports climbed year by year from 2016-2019, China’s coal imports reached 300 million tons in 2019, and Chinese coal imports grew by 6.6% yearly. Chinese coal imports will undergo a process of easing to severe tightening in 2020.
In the first quarter of 2020, there was a shortage of domestic coal supply in China, and Chinese coal imports increased significantly yearly. In the second quarter, the domestic production areas began to accelerate the resumption of production, resulting in a significant oversupply within a short period, and coal prices plummeted.
To stabilize coal prices and regulate supply, China gradually began to restrict Chinese coal imports, and the cumulative year-on-year growth rate of Chinese coal imports slowed down month by month.
1.Chinese coal imports status: China’s supply-side reform after gradual growth, Chinese coal imports in 2020 is a tightening trend.
Starting from the supply-side reform of the coal industry in 2016, Chinese coal imports entered a new round of growth. From 2013 to 2015, Chinese coal imports declined yearly due to a severe oversupply of coal in China.
Chinese coal imports rebounded significantly in 2016 after China’s supply-side reform was carried out in 2016 when China’s capacity or production release was curbed.
The total amount of China’s largest importer of coal imports climbed year by year from 2016-2019, China’s largest coal importer in the world ‘s coal imports reached 300 million tons in 2019, and China’s biggest coal importers of coal imports increased by 6.6% yearly. Chinese coal imports will undergo a process of easing to severe tightening in 2020.
In the first quarter of 2020, there was a shortage of coal supply in China due to the shutdown of production caused by the new crown epidemic, so China’s largest importer of coal imports coal increased significantly year on year to ensure coal supply.
The year-on-year growth rate of Chinese coal imports in the first quarter reached 28.3%. In the second quarter, China’s coal production areas resumed production at an accelerated pace, resulting in a significant oversupply within a short period and a significant drop in coal prices.
Australia is China’s second-largest coal importers import country. Chinese thermal coal buyers mainly import coal from Indonesia, Australia, Mongolia, and Russia. The four countries accounted for 46%, 26%, 12%, and 11% of coal imports in 2019, with Australia ranking second in Chinese coal imports.
If we exclude the poorer quality lignite imports (the vast majority of which come from Indonesia, accounting for 30% of total Chinese coal imports), Chinese coal imports in Australia rank first, accounting for 39%.
In the first quarter of 2020, Chinese coal imports from Australia, Indonesia, and Russia grew significantly. Australian coal imports rose the most significantly, with Australian coking coal contributing to the primary growth.
With the cumulative data from January to August 2020, Australia has become the largest coal importer of Chinese coking coal, with a 60% share of Chinese coal imports. However, from the trend, in addition to Mongolia from May, the rest of the major importing countries coal China’s single-month coal imports have declined significantly.
2. Australia’s coal ban will cause a supply gap; coking coal is more affected.
2020 coal supply continues to tighten;
Australian coal imports accounted for 2.6% of Chinese coal imports. After experiencing a temporary oversupply of Chinese coal in the second quarter, the production restriction policy of the main production areas in the third quarter gradually took effect, China’s production capacity continued to tighten, the cumulative year-on-year growth rate of coal production steadily narrowed, the cumulative output of Chinese coal from January to August 2020 was 2.45 billion tons, the year-on-year growth rate fell to -0.1%, the cumulative coal imports of Chinese coal imports in the same period was 220 million tons, the year-on-year growth rate narrowed to 0.2%.
In the January-August incremental total supply of 2.67 billion tons of Chinese coal importers, Australian coal imports accounted for 2.6%, higher than the 2.1% and 1.9% levels in 2018 and 2019. It can be seen that the ban on Australian coal imports will cause a more obvious supply gap of Chinese coal imports.
The proportion of coking coal in Chinese coal imports of Australian coal is gradually increasing. Steam coal accounts for a relatively large proportion of imported Australian coal, with a total of 76.95 million tons of imported Australian coal in 2019, including 45.69 million tons of steam coal, accounting for 59% of Chinese coal imports and 30.84 million tons of coking coal, accounting for 40% of Chinese coal imports. From 2018, the proportion of coking coal gradually increased, and the ratio of coal imported by China rose to 45% of the cumulative implications of Australian coal from January to August 2020.
Australian coking coal imports account for more than half of the total, which is more influential compared to steam coal. The proportion of Australian steam coal in China’s lignite and steam coal imports in 2019 is 28.3%, while Australian coking coal accounts for 41.4% of total coal imports, which reaches 60% of the cumulative coking coal imports in August 2020.
3. To fill the gap requires internal and external joint efforts, China’s coking coal leader or priority benefit
Chinese coal imports for the supply gap left after the ban on Australian coal imports or will mainly rely on China’s domestic coal supply force, combined with Indonesia, Mongolia, and other exporting countries instead to fill.
For thermal coal and coking coal, the ease of substitution will impact the supply of different coal types. Compared to thermal coal, coking coal relies on a limited degree of import substitution from other countries, and its supply collection is relatively tight, which is favorable to Chinese coal leaders.
For thermal coal: Chinese coal buyers import coal from Indonesia, forming a good substitute country for Chinese coal imports; at the same time, Chinese coal imports to ensure supply or release domestic capacity in the Palace. Indonesian coal (including lignite) has been the most important source of Chinese steam coal imports for years, accounting for about 60% of China’s broad thermal coal imports.
We must consider that about 80% of Chinese coal imports from Indonesia are lignite, which has been gradually replaced by Indonesian tehrmal coal in recent years due to environmental policy pressure.