Power shortages and a cold winter could send China's annual coal imports to the second-highest level on record in 2021, despite efforts to fight climate change and achieve self-reliance in energy, analysts said.
IHS Markit analysts expect the world's largest coal consumer to buy 310 million tonnes to 320 million tonnes of the fossil fuel in 2021, while Wood Mackenzie analysts expect 325 million tonnes. Both projections are just below the country's all-time record of 327 Mt in 2013. Imports rose 10.6% year on year to 292.3 Mt in the first 11 months, data from the General Administration of Customs showed. China accounted for 23.4% of global gross imports in 2020, according to the International Energy Agency.
The increase was mainly driven by a domestic coal shortage, Zhao Dongchen, ICBC International's head of equity research, said in an email. "On the one hand, some local governments had put strict restraints on coal mining, which limited domestic coal supply, especially supply in the spot market. On the other hand, China's economy is making a healthy recovery from the COVID-19 impact, particularly in the [manufacturing] sector," Zhao said.
Imports fell sharply in the first five months because of an unofficial ban on Australian products and COVID-19 restrictions in Mongolia, another major coal supplier. Domestic coal production failed to catch up with surging electricity demand, due to increasing safety checks in key coal mine regions and tightening environmental requirements. The coal supply shortage resulted in an energy crisis that curtailed industrial productivity across the nation. Major coastal regions, including the Jiangsu, Zhejiang, and Fujian provinces, lifted import quotas in June, pushing imports higher in the second half, according to consultancy Mysteel.
In November, China's total thermal and metallurgical coal imports skyrocketed more than 200% year on year to 35.1 Mt, the highest for a single month in 2021, according to China Customs data. Imports of thermal coal, which is used to generate electricity, were up 252% to 26.2 Mt from a year ago in November, according to Mysteel. Coal powers around 60% of China's electricity.
Though the power crunch has eased since mid-October due to government interventions, November's coal imports were still 30.1% higher from October, according to China Customs data. China bought a lot of coal in September when coal prices rose sharply, but some cargos that were scheduled for delivery in October were delayed to November when coal prices plunged, said Zhai Yu, managing consultant at Wood Mackenzie.
The spot thermal coal price at Qinhuangdao port jumped to a record of 2,500 Chinese yuan per tonne on Oct. 19, before the National Development and Reform Commission, or NDRC, told key coal miners to study a mechanism that will stabilize coal prices and boost supply. The state planner then set the benchmark price for long-term thermal coal contracts in 2022 at 700 yuan per tonne, S&P Global Platts reported on Dec. 3. The price has since slumped more than 60% to 902 yuan per tonne as of Dec. 24, according to a note by Tianfeng Securities.
Production playing catch-up
The Chinese government ordered coal miners to ramp up production ahead of winter. Coal mines produced a record-high 370 Mt coal in November, up by 4.6% from a year ago, according to the National Bureau of Statistics. Coal stockpiles held by ports in northern China reached 24 Mt on Nov. 11, up by 4 Mt from the beginning of the month, and daily coal output reached a record 12.1 Mt on Nov. 10, the NDRC said.
Analysts of Tianfeng Securities said the Shanxi and Shaanxi provinces, two major coal mining hubs in China, have rolled out large-scale safety checks after incidents of illegal coal mining and fatal accidents, which will affect coal supply. From the demand side, coal-fired power plants saw increasing daily consumption as southern China heads for a cold wave, they said.
The La Niña event might lead to colder weather, but China's coal demand will start to drop around the middle of January ahead of the Chinese New Year holiday, and the current coal inventories will be enough for the heating season, Zhai said.
Imports to flatten but remain high
Analysts forecast a slight
"As stockpiles at generation companies get replenished, we expect the government to crack down on coal imports by enforcing stricter quotas," Natalie Biggs, head of thermal coal markets at Wood Mackenzie, wrote in a Dec. 17 note. "China will also set domestic coal prices lower, ratcheting down prices in the seaborne coal market, where its 25% share of total demand wields significant influence."
China's seaborne thermal coal imports in 2022 will be about 10 Mt less than 2021, Zhai said. He expects domestic coal prices to drop to about 700 yuan per tonne next year, which is still at a high level. That means power generation companies will continue to import products to stabilize domestic thermal coal prices, he added.
Domestic coal supply is expected to grow faster than demand, as China's policymakers have reemphasized the importance of coal in the energy mix, according to Zhao.
In the longer term, China's coal imports will fall sharply as the country tries to wean itself from high-emission coal, Lin Boqiang, a professor and dean of China Institute for Energy Policy Studies at Xiamen University, said in an interview. The country pledged to peak carbon emissions before 2030 and achieve carbon neutrality by 2060. Lin projects that China's coal consumption will drop to about 5% of the 2021 level in 2060. The time to peak coal use will depend on economic growth and the development of renewable energy, which is still too small and facing challenges of short-term fluctuations in power generation, he added.
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As of Dec. 30, US$1 was equivalent to 6.37 Chinese yuan.