VINACHEM

One of the standout commodity stories so far this year has been China’s demand for thermal coal, with the world’s largest importer seeing record shipments arriving in the first half.

China’s imports of thermal coal from the seaborne market, used mainly to generate electricity, were 168.73 million metric tons in the first six months of the year, up 8.5% from 155.51 million in the same period in 2023, according to data compiled by commodity analysts Kpler.

This was the strongest first half in China’s history and puts the world’s second-biggest economy on track for another record year for coal imports in 2024.

But there are some signs that China’s appetite for seaborne thermal coal may be easing, raising the possibility that the second half of 2024 will be weaker than the first.

July’s seaborne imports of thermal coal are forecast by Kpler to be 29.66 million tons, slightly higher than June’s 29.44 million, but weaker by 2.5% on a per day basis.

The growth rate for the first seven months of the year is expected to slip to 7.1% from the 8.5% seen in the first half.

The question becomes what are the factors that may drive a moderation in China’s demand for seaborne thermal coal.

The main driver is a recovery in China’s domestic output, which had been softening amid ongoing mine safety inspections in key coal-producing regions.

China’s coal production rebounded in June, with output of all grades of the fuel jumping to a six-month high of 405.38 million tons, which was also 3.6% above the same month in 2023, according to official data released on July 15.

The soft start to 2024 meant year-on-year production was still down 1.7% in the first half, but this was an improvement on the 3.0% drop recorded in the first five months of the year over the same period in 2023.

Another factor is that coal’s share in China’s electricity production is slipping, with official data showing thermal generation fell for a second straight month in June, dropping 7.4%, adding to the 4.3% decline in May.

Thermal generation does include some small amounts of natural gas-fired power, but it is mainly coal.

Coal’s share in China’s electricity mix is being eroded by hydropower, which is rebounding from a weak, drought-affected 2023, and also by rising output from renewables such as wind and solar.

Hydropower rose 44.5% in June following an increase of 21.4% in May, while wind output gained 10.4% in the first half of 2024 from the same period a year earlier and solar jumped 39.4% over the same period.

If hydropower can maintain its recent strength and renewable deployment continues at pace, it increases the likelihood of coal-fired generation declining in the second half of the year.

This in turn means China may be less reliant on imported thermal coal, especially if domestic output continues its upward trend.

Price trend

Going one step further, the question becomes whether lower Chinese demand will result in significantly softer prices for Asia’s main seaborne thermal coal grades.

The answer is not necessarily, as any coal not taken by China tends to be bought by other countries, especially if there is some retreat in prices.

Indonesia is China’s biggest supplier of thermal coal, and the popular 4,200 kilocalories per kg grade , as assessed by commodity price reporting agency Argus, has been in a declining trend in recent weeks.

It ended at $52.72 a ton in the week to July 19, which was marginally up from the prior week’s $52.70, but that was the lowest price since September last year, and the grade is down 9.4% from its peak so far this year of $58.17 in early March.

The softer price, which has been mirrored in competing Australian coals, has led to other Asian countries ramping up imports of seaborne thermal coal.

Vietnam’s imports for the first seven months of 2024 were 26.48 million tons, up 44% from the same period last year, according to Kpler data.

India, the world’s second-biggest coal importer, saw arrivals of thermal coal of 104.81 million tons in the first seven months of this year, up 14.9% from the same period last year.

Japan, the third-biggest buyer, saw thermal coal imports leap in July to 10.89 million tons, up from June’s 7.05 million and the highest since January, according to Kpler.

– Source: mining.com –