China whacks thermal coal

Via Macquarie:

 Our expectations that China would clamp down on coal imports at some point this year are starting to play out, with news last week that the Chinese government has banned “tier 2” ports from accepting coal imports from 1st July. Based on our channel checks with power plants, traders and industry contacts, this policy seems to be real but implementation details remain unclear. The main goal of this policy is believed to be to restrict low quality coal imports, but the timing is unusual given that domestic coal prices have been rising towards the top end of the government’s price target zone and the government has been trying to prevent coal prices from increasing further.

 China coal imports last year were mainly from Indonesia, Australia, Inner Mongolia, North Korea and Russia, of which imports from North Korea have already been stopped due to sanctions. The target of import restrictions is on low quality thermal coal as we understand from government messages, which means Indonesia could be the main country to suffer from these import tightening measures. However the immediate impact of this ban on tier 2 ports’ coal import may be a pause in traders’ overall import activities as they are waiting for implementation details and looking for alternative import ports. On a long term view, the Chinese government’s target is to restrict coal imports to around 200mtpa, as they forecast coal production to be 3.9Bn tonnes by 2020 and consumption to be 4.1Bn tonnes.