China Amplifies Domestic Coal Production
In recent times, China has astutely navigated its coal production strategy toward enhancing outputs from the domestic market. Interestingly, as per the analysis by Niels Rasmussen, BIMCO’s Chief Shipping Analyst, this move has resulted in a 5.8% increase from last year’s production statistics. The Chinese government has raised the bar in their targets, with projections for domestic coal production set at an impressive 4.6 billion tonnes by 2025, a remarkable 2.5% increase compared to recent 2022 levels. Bolstering current statistics, it seems that the Chinese coal mines are indeed poised to attain, if not exceed, these targets within the current year.
Foreign Coal Imports Skyrocket Despite Domestic Growth
However, even with this remarkable uptick in domestic coal production, the surprising surge in seaborne coal imports cannot be overlooked. It appears that the domestic coal supply has been facing fierce competition from overseas imports, driven by appealing price points and superior quality marks. Illustratively, there has been a monumental increase in coal imports from Mongolia, measured at five times the numbers compared to last year, Rasmussen reveals.
Struggling Coal Quality Amidst Rising Production Costs
Also worth our attention is the information from the Center for Research on Energy and Clean Air that outlines significant increases in the production cost index for coal mining and washing by 45% and 17% respectively in 2021 and 2022. Unfortunately, in the precipitous drive to meet output targets, mine operators have fallen into the pitfall of prioritizing quantity over quality. This issue was identified as a “Clear decline in coal quality” by an official from the China Electricity Council earlier this year.
Rising Coal Supplies Fuelling Power and Steel Production
On another note, we continue to see a trend where imported coal constitutes roughly 7-8% of the total coal supply in China. The cumulative effect of surges in both imports and domestic production has precipitated more than a 15% year-on-year uptick in China’s total coal supply. As a result, electrical production from fossil fuels has seen a 5.8% growth, and steel production figures are up by 2.8%.
Record High Coal Stocks at Power Plants, Seaborne Imports Play a Huge Role
Indeed, these dynamics between supply and demand have led Chinese power plants’ coal stocks to amass a record-breaking 187 million tonnes in May alone, amassing more than the total seaborne imports so far this year, as Rasmussen pointed out. Narrowing down on the seaborne imports, it is astounding to note that nearly half of this increase is attributed to shipments from Indonesia. Russia and Australia together chip in for the other half. As a result, Capesizes have enjoyed a windfall, as their coal consignments to China have nearly doubled due to imports from Russia and Australia, thus benefiting all size segments from the escalated coal shipments into China.
