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China’s domestic coal demand disrupts prices

Exorbitant coal prices from past power shortages not expected to ease without enforcement measures

China’s coal imports reportedly surged 43 per cent in April, catalysed by panic buying over concerns of supply disruption in the wake of Russia-Ukraine conflict. As a result, traders turn to cheap domestic supply.

High demand turns detrimental
China shipped in 23.55 million tonnes of coal in April 2022, data from the General Administration of Customs revealed. That compares with 16.42 million tonnes in March and 21.73 million tonnes in April 2021. For the period of January-April 2022, China brought in a total of 75.41 million tonnes of coal, down 16 per cent on the same period a year earlier.

Benchmark Newcastle thermal coal NCFMc1 hit a record high of US$440 a tonne early March 2022, fuelled by fears of tight supply as Western countries vowed to impose sanctions on Russia’s financial system and energy products after Russia invaded Ukraine.

Price caps in force
As global coal prices stayed high while Chinese central government ordered miners to boost domestic output and capped local prices, Chinese traders shunned expensive seaborne cargos in favour of domestic sources. China aims to churn out a record 12.6 million tonnes of coal daily and maintain coal prices under term-contracts at RMB 570-770 (US$84.99-114.81).

Meanwhile, China’s state planner in April urged 14 regions, including Guangdong, Guangxi and Zhejiang, (largely reliant on imported coal) to sign more term-contracts with the top mining hubs of Shanxi, Shaanxi and Inner Mongolia for domestic supply. However, the prices have also prompted the planner to deploy stronger forces to stabilise coal prices and curb price gouging from new coal price caps.

The National Development and Reform Commission (NDRC) in February set price caps for the benchmark 5,500 kcal thermal coal at Qinghuangdao Port at RMB 770 (US$115.46) a tonne for term contracts and RMB 1,155 a tonne for spot cargoes, with effect from 1 May 2022. Despite efforts to optimise its energy mix, coal still contributes about 60 per cent of China’s total power generation.

The NDRC said, “China must take practical measures to stabilise coal and power prices, and energy costs in enterprises to provide strong support for China to reach stable economic growth.”  A price guidance for ex-pit coal in the major mining regions of Inner Mongolia, Shanxi and Shaanxi was also established. NDRC will be intervening upon reports of overpriced coal and conduct inquiries.

Marine Online News Team
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