Beijing dampens anti-Canberra rhetoric on coal shortage

Beijing may be dampening its rhetoric against Canberra amid increasingly acute coal shortages, which could worsen in the first quarter of 2021 because of drier weather conditions.

China could face a relatively drier climate from January-May 2021, according to the country's meteorological administration. This could curtail hydropower availability, pushing utilities to rely more on thermal power instead.

Heavy snowfall can also be expected in north China during most of January, the administration said. This could result in snow-related mining disruptions in the part of China where much of its coal is produced.

China's lunar new year holiday in 2021 will run from 11-17 February. Some of the smaller producers closed as early as one month before the 2020 lunar new year holiday to avoid strict safety inspections and to allow migrant workers time to travel home, although larger state-owned mines are likely to continue some production during the holiday. Any early closures in 2021 for the holiday season may further restrict domestic output even as heating demand is expected to be strong.

But China's industrial sector typically scales down operations around the lunar new year season, which may temporarily dampen industrial demand for power and help stabilise spot prices.

China's coal shortages have been partly caused by steep import cuts since April and the inability of domestic producers to make up for the shortfalls. China produced 347.27mn t of all types of coal in November, a 1.5pc increase on the year and up by 0.1pc from October, according to data from the national bureau of statistics (NBS). But imports of all types of coal in November dropped by 44pc from a year earlier to 11.67mn t. This helped to pull January-November imports down by 11pc on the year to 260mn t, according to Chinese customs data.

Australia-China relations Beijing's informal ban on Australian coal since April following Canberra's call for an investigation into the origins of the Covid-19 outbreak has been a key factor behind China's coal shortages. But there are hints that the Chinese government may be toning down its rhetoric against Canberra, as the trade tensions inflict damage on both countries' economies.

"China and Australia are part of the Asia-Pacific family and have benefited from mutual trade for a long time …. the current deadlock is not something we like to see," China's minister of foreign affairs Wang Yi said on 18 December, according to the ministry's website. "Australia needs to consider whether China is a threat or a partner. If they regard us as a partner, then there is the basis for dialogue. We really hope that relations between our countries can normalise," said the minister, who also holds a high-ranking position as a state councillor in the state council of the People's Republic of China.

Seaborne coal from non-Australian sources has not been enough to fulfil China's appetite for higher-calorific value (CV) NAR 5,500 kcal/kg coal. Chinese buyers have booked some December- and January-loading cargoes of NAR 5,500 kcal/kg coal from non-Australian sources such as Russia, Colombia, Indonesia and South Africa, but there is limited spot availability from these origins. Even if these cargoes arrive in China in January, it will still take 20-30 days to obtain customs clearance before they can reach utilities.

Some Russian suppliers offered January-loading Capesize cargoes of NAR 5,500 kcal/kg coal at as much as $80/t cfr south China last week, while some Indonesian producers offered January-loading Supramax cargoes of GAR 5,800 kcal/kg (NAR 5,500 kcal/kg) at significantly higher levels. This is well above prices for January-loading Capesize cargoes of Australian NAR 5,500 kcal/kg coal, which were offered at up to $60-63/t fob Newcastle at the end of last week.

The domestic coal shortages have resulted in some Chinese provinces rationing electricity and contributed to a spike in China's domestic spot prices. Argus assessed the market for Chinese NAR 5,500 kcal/kg coal at 768.44 yuan/t ($117.30/t) fob Qinhuangdao on 18 December, up sharply by Yn36.44/t from a week earlier. In dollar terms, the price was assessed at $117.65/t, up by $5.73/t on the week.

By Kelvin Leong

NAR 5,500 kcal/kg coal prices $/t

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