China's Q2 met coal supply seen limited, coking sector's stocks dip: sources

China's metallurgical coal supply is expected to remain limited in the second quarter of 2022, as coking sector's inventories deplete and Mongolian coal suppliers face logistical hurdles, industry sources said April 13.

As of April 8, met coal stocks held by key Chinese independent coking producers reached 11.028 million mt, down 384,000 mt, or 3.4%, on the week, latest data from Hunan-based research firm Goldtrust Futures showed.

Industry analysts see relatively lower seaborne met coal shipments reaching China in Q2 than Q1 due to the Russia-Ukraine conflict.

Mongolian imports stuck

Meanwhile, some Mongolian coal shipments got stuck at Northwest Inner Mongolian land ports, as authorities flagged fluorine content in coal not in compliance with standards, resulting in several containers accumulating at the land ports of Erlian and Ganqimaodu, according to Shanxi-based information services company Fenwei.

This has hindered Mongolian coal trade into China, Fenwei said, quoting traders.

As a result, Ganqimaodu's efforts to step up daily coal haulage into China and raise the number of trucks to 300 remain a distinct possibility for now, according to investment bank Founder CIFCO Futures.

Also, China has adopted strict measures to contain the coronavirus outbreak, a development that would keep operations at the Ceke land port closed, CIFCO said.

In the near term, daily Mongolian coal haul to China is expected to remain steady at around 200 trucks, according to CIFCO.

At one point in 2020, the number of trucks hauling Mongolian coal into China reached more than 2000.

Batnairamdal Otgonshar, vice-minister at Mongolia's Mining and Heavy Industry Ministry, recently told S&P Global Commodity Insights that the country was ramping up its met coal exports to China.

Mongolia aims to ship 36.7 million mt of met coal to China in 2022, the minister said. That will take 2022 volumes 161% higher from the last year level.

Supplies limited in near term

China is prioritizing thermal coal demand, leading to capping of domestic met coal output growth in January-February, while limited Mongolian coal haul has squeezed met coal supplies further, investment consultancy Haitong Futures said.

More met coal supplies from Mongolia and Russia are only expected by the third or fourth quarter of this year, according to Goldtrust.

While met coal stocks at coking producers were down, stocks at key Chinese ports were also at lower levels.

As of April 8, met coal stocks at six Chinese ports were at 2.02 million mt, according to Goldtrust data.

Imports fall

China's February met coal imports fell 45.8% on the month, or 7.44% lower on the year, to 2.99 million mt, latest customs data showed.

This is the lowest import level in two years, according to the data.

China traditionally buys coal from Australia, but Australian coal suppliers have been facing an unofficial ban since December 2020.

While customs data showed imports of Australian coal in January-February improved, industry analysts said these were volumes going through customs clearance at ports and were not new orders.

Meanwhile, China's Q2 coking coal supply and demand both are seen weak from the previous quarter, according to investment bank Haitong Futures.

Judging from the seasonal changes in China, Q2 is a destocking period for the steel sector, Haitong said.

As the current level of coking coal stocks is not high, the upcoming destocking activity would not have much impact on met coal prices, according to Haitong.