The Chinese government may consider relaxing curbs on imported thermal coal because domestic coal prices have been soaring and increased power demand is expected. Any relaxation of import constraints could support imported coal prices.
China's top economic planning agency the NDRC held an internal meeting recently regarding coal supply during the current summer peak season and discussed the necessity of relaxing import restrictions, a source close to the matter told Argus.
It is unclear when the curbs will be relaxed or how many fresh quotas will be granted to Chinese ports, but the "NDRC seems serious this time", the source said.
Beijing's willingness to consider relaxing import curbs comes as China's spot domestic coal prices reached an 11-month high in US dollar terms on 10 July, according to Argus assessments. Prices have been driven up by stronger summer demand, expiring import quotas and curbs on domestic production.
Argus assessed the market for NAR 5,500 kcal/kg coal at 596.17 yuan/t ($85.15/t) on 10 July, up by Yn26.17/t a week ago. The dollar price, which is also being supported by a stronger Chinese yuan against the US dollar, is at its highest since 2 August 2019.
Import quotas at a few Chinese ports have been exhausted for 2020, forcing utilities that import through these customs jurisdictions to increase their reliance on domestic coal for restocking. This has slashed prices of imported coal. Argus assessed the price of the most liquid Indonesian NAR 3,800 kcal/kg (GAR 4,200) coal at a historical low of $23.41/t fob on 9 July.
China's national coal imports reached 148.71mn t in January-May, up by 17pc on the year, customs data show. But May imports slowed on the impact of limited quotas to 22.06mn t, down by 20pc on the year.
Quandary facing NDRC
The NDRC has landed in a conundrum as it seeks to create conditions conducive to both Chinese coal producers and Chinese utilities. It has pushed domestic coal producers recently to raise production to help dampen high domestic prices and meet strong demand. This follows a reduction in domestic supply from late April when the authorities cut back on sale permits in major coal-producing regions, such as Inner Mongolia and Shaanxi province, forcing local mines to lower output.
But the NDRC has had many appeals in recent weeks from large generators, which have been concerned about the high price of domestic coal and the negative impact on utility profits.
The NDRC may allow the relaxation of import curbs because coal consumption in the coastal regions has been stronger than expected. Southern and eastern coastal regions are facing power shortages, probably because several ultra-high voltage power transmission lines are thought to have been destroyed by flooding in regions along the Yangtze river. The southern and eastern coastal regions normally rely on these transmission lines to receive hydropower.
Any noticeable disruption to the transmission of hydropower could increase demand for coal-fired power that can be generated locally in the south and east, thus raising demand for coal imports.