Power crunch means China could ease Australia coal restrictions
04:36, 11 October 2021
The Chinese government could allow customs clearance of stranded Australian thermal coal to ease shortage of supply amid power crunch in the country.
Booming electricity demand, strict implementation of energy and environmental targets, and record high coal prices have caused power crisis in China, resulting in large-scale power rationing in September.
China has banned buying coal from Australia since last year due to a trade spat with the second largest coal exporter. It has not resumed imports despite the power crisis, consulting firm Wood Mackenzie said on 8 October, this may soon change.
Custom clearance
Chinese importers have told Wood Mackenzie that they believe they will now be allowed to clear Australian coal through customs. Most of this coal has already been unloaded into stockpiles at ports but has previously not been allowed to clear customs. Customs authorities have yet to officially confirm this with owners of the cargoes.
“We estimate around 5 million tonnes (Mt) coking and 3 Mt of Australian thermal coal stockpiled in Chinese ports that could be cleared into China’s domestic market,” said Rory Simington, Wood Mackenzie’s principal analyst, in the note.
However, the quantity of stockpiled thermal coal is not sufficient to have a significant impact on prices in China’s domestic market, Simington added.
“Coking coal’s quantity is more significant to China’s domestic market and could lead to easing in domestic price,” he said.
Utilities operate at a loss
China’s seaborne thermal coal price marker, the Qinhuangdao 5,500, has increased to CNY1,500 a tonne ($230/tonne) even as the peak summer season ended in September, according to Wood Mackenzie. It was more than twice the price in the same period last year.
As a result, the coal price delivered to power stations is now around $11/MMBtu (million British thermal units), a price level more commonly associated with expensive imports of liquefied natural gas.
According to Wood Mackenzie, although most coal generators are not fully exposed to spot thermal coal prices, over 90% of power plants have been loss-making so far this year. This is because China’s hybrid system of selling coal power to the grid around a regulated band means costs cannot be passed through to consumers.
Market tightness
Wood Mackenzie’s managing consultant Yu Zhai said market tightness will moderate to some extent following a new supply easing measure released in China.
Inner Mongolia autonomous region and Yulin city of Shaanxi Province have announced that they will be increasing supply to meet demand.
“The increasing supply will help gencos (generation companies) to increase their inventory gradually,” said Yu.
Coal inventory drop
Coal inventory in key generation companies dropped to 49 million tonnes by end of August which was roughly 30 million tonnes lower than last year.
“As power generation firms suspended traditional restocking in September this year, we expect the gap of inventory in September or early October to widen to 40 Mt or even more year-on-year,” said Yu.
Coal provides about two-thirds of China’s power. The National Development and Reform Commission reported that thermal power generation (mostly coal) grew by 12.6% in the first eight months of 2021, Wood Mackenzie noted.