Japanese February imports high, but coal burn capped

Japanese thermal coal imports hit a multi-year high for the month in February amid high thermal power generation this winter, although coal-fired capacity restrictions limited the rise and increased the country's reliance on natural gas.

Japanese coal imports rose by 670,000t or 7pc on the year to 9.8mn t last month, according to provisional finance ministry data released today. This follows January's 13-month high of 10.7mn t, bringing imports in the first two months of the year to 20.5mn t — at least an eight-year high.

Generation from fossil fuels rose by 14pc on the year in January to 73.5TWh, data from the major utilities show, driven by an 8pc increase in power demand and lower nuclear availability. Data for February have not been published, but lower nuclear availability is likely to have boosted thermal generation on the year again last month, despite slimmer overall power demand.

But an increase in capacity restrictions is likely to have limited the extent to which utilities were able to raise coal burn to offset the annual drop in nuclear availability. Data from the Japanese power exchange show that around 6.4GW of coal capacity was restricted by maintenance and outages last month, leaving around 43.7GW available.

This would be down from around 44.9GW in February 2020 and means that the overall growth in coal-fired generation would have been limited to 370GWh or 1pc, assuming the available capacity was run at an 89pc load. Japanese coal-fired generation totalled 25.8TWh in February 2020, representing around 83pc of the available capacity.

Japan's reliance on natural gas is therefore likely to have remained high last month and the country's LNG imports rose by 21pc on the year to a three-year high of 8.1mn t; far outpacing growth in coal imports. This was despite a spike in average LNG import costs, following steep gains in the spot market at the start of the year, which have made coal increasingly competitive for power generation in 2021.

At $9.23/mn Btu, the value of Japan's LNG imports in February was broadly flat on the year and up by 10pc on the month, while the average cost of Japan's thermal coal imports rose by only 8pc on the month to $87.40/t, down from $92.80/t a year earlier.

Stockdraw

Strong generation from coal and gas in January is also likely to have depressed inventories early in 2021 and supported imports of both fuels last month. Granular generation data for January are not yet available, but implied coal-fired capacity availability was around 3.9GW higher on the year, according to Argus calculations, potentially supporting up to 14pc growth in coal burn.

Utility coal stocks at the end of November — the latest period for which data are available — were around 170,000t lower on the year at 8.2mn t.

Japanese power demand has grown by around 1pc on the year in March which, together with a 1.7GW drop in nuclear availability, may have continued to support generation from coal and gas.

And the potential for year-on-year growth in coal-fired generation is stronger this month than last, as available coal capacity of 41.7GW is marginally higher than in March 2020, when average load factors were relatively low. Coal burn reached 23.6TWh in March 2020, which was 76.3pc of the 41.5GW available capacity.

Coal's current cost advantage for power generation may also encourage utilities to increase the fuel's share of the overall fuel mix. Based on average import prices in February, a 38pc-efficient coal plant faced a tax-inclusive generation cost of around $34/MWh, against $59/MWh for a 55pc gas unit.

Imports from Australia firm amid China ban

Australia was the main driver of the year-on-year increase in Japanese imports, with receipts climbing by as much as 1.3mn t to 7.6mn t. This total may include small amounts of South African and Colombian coal, which are not differentiated in the provisional data.

China's informal ban on imports of Australian coal has forced sellers to boost sales to their other core markets including Japan. Similarly, availability of Indonesian and Russian coal in the region has tightened as China has increased purchases to offset its Australia ban. As a result, Japan's imports from Indonesia fell to 1.1mn t in February this year compared with 1.6mn t a year earlier, while receipts from Russia were flat at 960,000t.

By Jake Horslen and Saleem Rizvi

Japanese coal generation vs available capacity GW

Implied Japanese generation costs $/MWh

Annual change in coal/LNG imports %