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Eyes on Oz coal but Indonesia-China falls most

There has been much discussion in recent weeks and months about Chinese coal policy, particularly with regard to imports from Australia.

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Eyes on Oz coal but Indonesia-China falls most

This has been prompted by anecdotal evidence suggest Chinese importers have been told to shun Australian thermal coal. But what does the data say?

 

According to shipping association Bimco, Chinese coal imports were certainly down in October, falling to 13.7 Mt from 18.7 Mt in September and 25.7 Mt in October 2019. “This marks the sixth consecutive month in which coal imports have been lower this year than last,” said Bimco.

 

“The drop in imports is not just limited to Australia. In fact, both in percentage and absolute terms, imports from Indonesia fell by more than those from Australia in October.” Imports from the former fell by 75.4% (-8.6 Mt), whereas those of Australian coal fell by 60.4% (-3.8 Mt).

 

Adding to the headache for shipping is the fact that Mongolia and Russia took over as top coal exporters to China. “In fact, the drop in imports from Indonesia and Australia means that Mongolia

took the top spot as China’s main coal supplier in October, with imports totalling 3.9 Mt, 20.4% higher than in October 2019,” said Bimco.

 

“Russia jumped to second spot at 3.5 Mt (+28.3%). Mongolian coal exports to China are not transported by sea and the majority of Russian coal arrives by rail, further lowering the tonne-mile demand generated by Chinese coal imports, which is already low due to the short sailing distances from Australia and Indonesia.

 

“Despite all the chatter, between January and October, Chinese coal imports from Australia have been record high, at 77.4 Mt, a 7.6% increase from the same period last year. This is the equivalent of 775 post-Panamax loads (100,000t).

 

“Russia is the only other major country to have seen growth in the first 10 months of this year, at 29.5 Mt (+1.3% from 10 Mt in 2019) and overtaking Mongolia for third spot, though it still has a long way to go to catch up with Indonesia or Australia.”

Despite a 14.4% drop in coal imports from Indonesia in the first 10 months of the year, it remains by far the largest origin for Chinese coal imports. Between January and October, China imported 110.2 Mt of coal from Indonesia, down 18.5 Mt (185 post-Panamax loads).

 

With rumours rife about substitutes for Australian coal, a deal was recently announced between China and Indonesia. China is said to have agreed to buy around US$1.47B worth of coal from Indonesia in a three-year time frame.

 

The Memorandum of Understanding (MoU) is light on specifics and several key details are yet to be agreed upon, such as the actual volumes to be exported in 2021 and beyond, and a price index that can be negotiated regularly.

 

The deal must be put into context. “In the three years between 2017 and 2019, China imported US$20.3B worth of coal from Indonesia, an average of US$6.8B a year. At just US$1.47B, this deal formalises only a small proportion of this deal and is a long way from making up for lost volumes from Australia,” the association explained.

 

Peter Sand, Bimco’s chief shipping analyst, said: “Though still light on details and highly symbolic, this MoU is a clear signal from China that it is strengthening its ties with its other major coal suppliers, and that it will not suddenly return to large-scale buying of Australian coal when the calendar shows 2021.”

 

Despite the limited scope of the deal, it brings both good and bad news for shipping. The good news is that exports from Indonesia travel by sea, rather than by land, as is the case for coal arriving from Mongolia and Russia. The bad news is that the sailing distance is short, affecting tonne-mile demand.

 

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