Chinese coal importers in dilemma as weak domestic prices bite

Chinese coal importers in dilemma as weak domestic prices bite

Chinese coal importers are in the doldrums as they suffer from weak domestic prices that have narrowed down the spread with overseas coal, with many small-scale importers already being pushed out of the market.

Prices of thermal coal used for power generation tumbled to a multi-year low in China early August, caused by vicious competition among top producers in the wake of excess supply and weak demand.

Domestic prices have since then hovered low, with the gap with imported coal falling below 10 yuan/t in late August, making it profitless to import coal into the south China market as the import price generally should be 30 yuan/t cheaper than domestic supplies on a landed basis.

China’s coal imports dropped to a 23-month low of 18.86 million tonnes in August, falling 27.3% year on year and down 18.11% from July, the sixth consecutive month-on-month decline, showed data from the General Administration of Customs.

Leading private coal importers were forced to slash imports to avoid further losses, as demand from end users sagged amid flagging Chinese economy.

China Qinfa Group, the country’s largest private coal importer, posted net loss of 356 million yuan in the first half of this year, compared with a profit of 22.4 million yuan in the same period last year, the company said in its interim report on August 29, attributing it to falling domestic prices.

Customs data showed Qinfa imported only 0.35 million tonnes of coal in the first seven months, falling 72% from 1.24 million tonnes in the same period last year. Total imports stood at 1.52 million tonnes in 2013 and 2.73 million tonnes in 2012.

Chaozhou Yatai Energy Co., Ltd., once the second largest coal importer in China, slashed imports to 0.9 million tonnes in the first seven months, down from more than 6 million tonnes a year earlier, customs data showed. The company imported a total 7.76 million tonnes of coal last year and over 10 million tonnes in 2012.

Guangdong Lanyue Energy Development Co., Ltd., one of the leading coal importers at southwestern China's Fangcheng port, has stopped importing Indonesian coal after suffering huge losses last year, one company source said.

The company, which imported nearly 3.4 million tonnes of coal in 2012, has almost retreated from the import market, another source said.

Imported coal is regaining advantage amid the rise in domestic prices, attributable mainly to a series of measures taken by the Chinese government.

Among the measures, the directive on domestic miners to cut production and stricter supervision over mines producing beyond approved capacity would ease oversupply in the domestic market, sources said.

The National Development and Reform Commission’s directive on domestic utilities to slash imports in the last four months this year and restrictions on import of high sulphur and high ash coal from 2015 have also hit market sentiment, causing a decline in prices of overseas coal.

The price spread for domestic and imported 5,500 Kcal/kg NAR material shipped to south China ports rose to 24.5 yuan/t, showed the Fenwei/Platts China Coal Index (CCI 1 &8).

Even so, Chinese buyers have remained prudent in placing orders, due to the overall weakness in demand from utilities and concerns over the scope and impact of the newly released restrictions on quality of imported coal.

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