Chinese thermal coal prices are likely to come under pressure in 2020 from rising domestic output, while India makes further gains in its quest to surpass China as the world’s largest thermal coal importer.
India’s increased demand for imports, which is due largely to domestic production and transportation challenges, will likely come at a time of subdued import demand growth from China, where domestic supply is expected to increase 5% next year, China-based energy analyst Guo Chaohui told S&P Global Platts.
Guo expects China’s total coal demand growth to dip to 2.5% in 2020 due to weakening economic activity from 3.8% in 2019, while competition from natural gas and renewables will also rein in coal demand, he said. “The process of de-capacity for the coal sector is likely to weaken next year and production levels will be increased, so this will keep domestic prices subdued,” Guo said.
Some market sources expect a new tariff system from January 1 will provide some support for coal imports and put domestic prices under pressure. China has announced plans to scrap its coal-electricity price linkage mechanism from next year in a bid to keep raw material and electricity prices low. “Imported coal is always cheaper than domestic cargoes, so if there’s no restrictions, import volumes will keep increasing,” a trader in east China said.
However, domestic prices are likely to remain subdued next year and if cheaper imports add further pressure and domestic producers are seen to be hurting, authorities may tighten their grip on imports, the trader said. “The seaborne market is still largely subject to China’s import policy as China is trying to keep import volumes in check,” Guo said.
“It’s difficult to foresee how the policy will be, but if domestic prices are high, it’s likely that import controls will be less stringent, while the curbs will be tighter if domestic prices are low,” said Zhang Feilong of Yi Mei Net.
Despite the potential for an uptick in imports, Platts Analytics projects China’s thermal coal import volumes to fall 1.8% year on year to 215 million mt in 2020 due to higher domestic production displacing demand for imported coal at coastal power plants.