Chinese thermal coal exports collapsed in October, falling 32.1% to 7.3 million tonnes. The decline left total imports down 39% between January to October compared to the same period a year earlier.
According to Vivek Dhar and Kofi Mensa, commodity researchers at the CBA, the sharp decline reflects slowing economic activity, rising Chinese supply, a 6% tariff on imports and a preference away from thermal power as pollution concerns grow amongst China’s coastal cities.
On the back of weakening demand, Vivek and Dhar note that the government recently asked the nation’s two-largest state-owned thermal coal producers – China Coal and China Shenhua, to reduce production levels, something that came despite both companies being the country’s lowest-cost producers.
Demonstrating just how sharp the drop in Chinese demand has been, the pair note that Australian exports – down just 25% year-on-year – have fared the best compared to other major thermal coal exporting nations over the past year. Exports from Mongolia, Indonesia and Russia contracted 35%, 38% and 32%, respectively over the same time period.
Despite the slump in Chinese import volumes, Vivek and Dhar don’t expect the outlook for demand or prices to improve over the period ahead.
They suggest that improved “local coal railway infrastructure and stricter environmental regulation on coal imports will likely pressure China’s thermal coal imports even lower” with “prices to remain subdued until we start seeing thermal coal export supply reduce.”
Year-to-date front-month Newcastle thermal coal futures have fallen by over 13%.