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Oil report

COLUMN-China's sliding coal imports weakens one of the last bullish supports: Russell

(The opinions expressed here are those of the author, a columnist for Reuters.)

* GRAPHIC - Seaborne coal imports for Asia, China and India: tmsnrt.rs/3jVt4WJ

LAUNCESTON, Australia, Sept 8 (Reuters) - Among China’s generally strong imports of major commodities in August there was one standout area of weakness - the large drop in coal.

China’s coal imports fell to an eight-month low of 20.66 million tonnes in August, down 20.8% from July’s 26.1 million and a massive 33% below the level recorded in August last year, according to customs data.

The soft August outcome meant the growth in imports in the first eight months of the year slipped to just 0.2% from the same period in 2019, down from 6.8% in the first seven months in the year.

The lack of growth in coal imports in the January to August period contrasts with a 12.1% rise in imports of crude oil, an 11.8% gain in iron ore and a 34% surge in unwrought copper.

A weaker number for coal had been expected in August given market participants have been warning of Beijing’s unofficial efforts to restrict imports in order to keep domestic prices in a price range that supports miners, but doesn’t cause costs for power generators or industrial users, such as steel mills, to rise too high.

The problem for major coal exporters, such as Indonesia and Australia, is that the drop in top importer China’s demand removes a key pillar of support, and adds to an increasingly bearish narrative for the polluting fuel.

Asia’s total imports of coal from the seaborne market have slumped this year amid the economic fallout from lockdowns in many countries as they battle to contain the novel coronavirus pandemic.

In the first eight months of the year, Asia’s seaborne coal imports were 612.82 million tonnes, down 7.1% from the same period last year, according to vessel-tracking and port data compiled by Refinitiv.

Looking at the breakdown reveals some interesting disparities.

China’s official customs data is for total coal imports, including those that come overland by rail and truck from neighbouring countries such as Mongolia.

Refinitiv data shows that China’s seaborne imports were 183.2 million tonnes in the first eight months of the year, down 4.2% from the same period in 2019, with much of the drop due to the weak August figures.

Japan, Asia’s third-biggest coal importer, has held shipments largely steady so far in 2020, with the January-August period showing imports of 109.52 million tonnes, lineball with the 109.46 million from the same period last year.

INDIA, SOUTH KOREA SLUMP

The drop in the region’s imports has been concentrated in the other two countries that make up Asia’s top four, number two India and number four South Korea.

India’s imports in the first eight months were 113.48 million tonnes, down 18.4%, or 25.6 million tonnes, from the same period in 2019, according to Refinitiv data.

While India’s imports recovered slightly in July in August, with figures of 12.7 million and 12.8 million respectively, these are still down on the more usual figure of around 18 million tonnes that prevailed in the months prior to the March lockdown in the South Asian nation.

South Korea’s imports in the first eight months were 71.01 million tonnes, down 21% from the same period last year.

The weakness in Asia’s overall demand for coal is being reflected in prices for both thermal coal, used in power plants, and coking coal, used to make steel.

The Newcastle weekly index, the benchmark for higher-quality Australian thermal coal and assessed by commodity price reporting agency Argus, fell to $46.37 a tonne in the week to Sept. 4, its lowest since November 2006.

The index has dropped 33.4% from its peak so far this year of $69.59 a tonne in mid-January.

Lower-rank Indonesian coal slipped to $22.63 a tonne in the week to Sept. 4, the lowest since Argus started assessments in 2008 and down 37.8% from its 2020 peak of $36.67 a tonne from mid-February.

The question for exporters is whether they believe that China will change its unofficial policy and allow in more imports, and whether they think India’s economy, and power demand will recover strongly in coming months.

In the absence of these drivers, it would be difficult to forecast a rebound in prices, which are already at levels that will leave some export production economically unviable. (Editing by Richard Pullin)

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