China cuts rail freight to promote economic activity

China's state-controlled Xi'an Railway group has reduced rail costs by 20-26pc for cargoes departing from some parts of Shaanxi, the country's third-largest coal producing province, to encourage more domestic industrial activity and cut coal logistics costs.

The discount took effect on 4 April and was intended to help market participants adjust to the more challenging economic climate as the Covid-19 pandemic takes its toll on global demand for Chinese manufactured products, capping any growth in industrial demand for coal.

Xi'an Railway is a regional operator with lines connecting Shaanxi province with coal-consuming provinces. Although its discounts do not apply nationally, the move is expected to set the tone for other regional railway networks to offer similar incentives.

The discounts should complement nationwide reductions in cargo insurance fees, container detention charges and even some other rail services announced in early March. These discounts apply from 6 March to 30 June, state-owned China Railway said when it granted the relief of nearly four months to boost the country's industrial recovery from the coronavirus outbreak.

Any further industrial recovery in China must be supported by corresponding demand for its manufactured products and exports. Although China said it has largely brought the outbreak under control, large parts of the world are still struggling with the pandemic and the lack of global demand for Chinese exports is weighing on industrial demand for coal.

Combined daily coal consumption by the five state-owned main coastal utilities of Zhejiang Power, Yudean, Huaneng, Datang and Shanghai Power were 520,500 t/d yesterday, down by 48,200 t/d from 568,700 t/d on 5 April, reflecting the sluggish demand in China's coastal regions where much of the nation's industry is located. Chinese coal association the CCTD has removed Guodian as a contributor to the coal use data it provides on the six main coastal utilities, presumably because Guodian has not been updating its data regularly. Huadian is expected to replace Guodian as one of the six most closely watched flagship coastal utilities.

By Kelvin Leong