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Hope rising on China's relaxing of coal import curbs

Confidence is building among Chinese coal-market participants that government authorities will soon partially ease the controls currently imposed on coal imports, lifting the restrictions perhaps until the end of this year to meet buoyant domestic energy demand.
Triggering the optimism has been wide-spread speculation that the country’s General Administration of Customs (GACC) will release 20 million tonnes of coal import quotas, mainly for thermal coal, to domestic end-users until year’s end. Those quotas will have to be used for coal cargoes booked to arrive at Chinese ports before the end of December, according to the speculation. Detailed plans of the quota distribution are unclear.

“The easing of coal import restrictions would be aimed at helping domestic power plants build up coal reserves for operations during winter, and control the spike in domestic thermal coal prices,” a Shanghai-based analyst commented. However, opinion remains divided about whether the quota would last only till the end of this year or could be carried over and used early next year, he said.

“I’m not sure if the quota speculation was true, but I do note there’s been an increase in procurement from domestic end-users recently,” a Shanghai-based trader said. The domestic bidding was mainly for Indonesian coal, while that for Australian coal remained quiet, she said. Indonesia is China’s top origin for overseas coal imports, and most Indonesian coal exported to China is thermal coal, Mysteel Global notes.

China’s domestic coal miners, in general, have been struggling to maintain steady supplies to end-users this year, owing to the COVID-19 pandemic in the first quarter and the campaign of checks on safety and illegal mining activities conducted throughout major coal mining regions this year. Over January-October, China’s total raw coal output increased by only 0.1% on year to 3.1 billion tonnes, while the country’s total coal and lignite imports dropped 8.3% on year to 253.2 million tonnes in the meantime.

Domestic coal demand has strengthened further recently, owing to the heavy snowfalls and sudden drops in temperature across many regions, Mysteel Global noted. As of November 27, Mysteel’s price assessment for the 5,500 kcal/kg Shanxi blended thermal coal had firmed by Yuan 21/tonne ($3.2/t) on month to Yuan 626/t in Qinhuangdao port in North China’s Hebei, a new high since April 18, 2019.

However, contrary views regarding the import quota regime were still present in the market as of Friday, Mysteel Global notes. “The (central government) authorities have been very strict in controlling coal imports since the second half of this year, and the release of additional quotas would be going against this goal,” another source in Shanghai said. As reported, speculation has been rife in the market since early this year that China will control its total coal imports to within 270 million tonnes.

“But even if the restrictions are eased, the impact on coal prices would be limited, as imported coal only supplements domestic resources,” he said.

Written by Sean Xie, xiepy@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com

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