5 Aug 2009 06:52

China's surging coal imports rein in domestic coal prices, broaden supplies - expert

By Terry Wang

Beijing. August 5. INTERFAX-CHINA - Soaring coal imports into China over the first six months of the year have helped hold down the country's coal prices and shore up coal supplies, while low overseas prices have kept coal exports in check, a senior coal expert told Interfax.

China imported 48.27 million tons of coal in the first half, rising by 126 percent from last year, though the largest increase came in June when imports skyrocketed by 501 percent year-on-year to a historic high of 16.01 million tons, according to statistics from China's General Administration of Customs.

The increase in imports can be attributed to cheaper overseas coal, rather than a surge domestic demand, Huang Teng, a coal expert with Beijing LT Consulting Co. Ltd., said.

Overseas coal prices have fallen as the world's major coal importers, such as Japan and South Korea, have reined in their imports this year due to the economic downturn, Huang said.

The resulting supply glut has left more coal available for Chinese importers, who seized the opportunity to sign contracts for large volumes of cheaper coal in the first half, especially in February and March, when Chinese companies need to secure supplies for the peak consumption months of June and July.

"From what I know, some Chinese coal importers signed contracts in February and March for volumes that were about half of last year's total imports," Huang said. "However, the increase in coal imports failed to noticeably lift international prices in those two months."

The surge in coal imports has had more of an effect on the domestic market. "Although this year's import volume accounts for only a small proportion of the country's total consumption, 16 million tons in a single month does have a big impact on the domestic market."

Huang believes that one such effect has been low domestic prices. Even though coal consumption at China's power plants grew quickly in June, prices actually fell slightly for two weeks starting at the end of June.

Huang said that lower international coal prices have also taken a toll on China's coal exports, which plummeted by 54 percent year-on-year to 11.67 million tons in the first half.

The Chinese government has issued two batches of coal export quotas for 2009, allowing for a total of 51 million tons to be exported this year. Huang said that coal exporters will not be able to use up the second batch this year and the government only released the second batch to show that it is maintaining a consistent coal export policy.

Huang estimated that China will export 25 million tons of coal this year and import 60 million tons for a net import volume of 35 million tons for 2009.

The explosion of coal imports has also helped China's power plants augment their coal supplies as annual coal contracts remained unsigned in many regions and the National Development and Reform Commission (NDRC) appears to be in no hurry to mediate the dispute between the country's coal producers and power generators.

Huang believes that China has not experienced any significant supply problems this year as the country's railway transportation system, which is key to domestic coal trade, has been less burdened than in previous years due to slower growth in commodity demand and expanded transportation capacity.

"Therefore, even though few power plants have signed annual coal contracts, they can still easily arrange railway transportation for their spot coal purchases," Huang said. "Along with the increase in imports, power plants will not have much of a problem securing coal supplies for this year."

As for coal producers, Huang said that the coal market is in decent shape. "Demand continues to grow and coal companies are still making money, but just at a lower margin," he said.

China produced 1.35 billion tons of coal in the first six months of 2009, representing an increase of 8.7 percent year-on-year, according to the NDRC. China's coal industry earned a total profit of RMB 67.82 billion ($9.93 billion) in the first five months of the year, up by 4.2 percent year-on-year.

Huang predicted that China's coal import volume may start to fall in September. "This is because fewer import contracts were signed since June, when international prices started rising and marine transportation costs increased a lot from the first quarter of this year," he said.