China’s releasing 10m tonnes of thermal coal – but will its old trick to cool prices work?
Link copied to
China will reportedly release more than 10 million tonnes of thermal coal from its reserves in a bid to ensure steady supply for the market according to state-backed media.
The move, which was flagged by the official Xinhua news agency in late June, will mark the fifth time that the world’s most populous country has released coal reserves this year, though the past four releases only totalled 5 million tonnes.
It also comes after the National Development and Reform Commission’s forecast that higher coal production and imports would result in a “relatively large” decline in prices.
According to Reuters, China’s coal imports rose by 35% in June to 28.39 million tonnes, taking the total imported during the first six months of 2021 up to 139.56Mt.
Thanks to China’s unofficial ban on Australian coal – once its second largest supplier – most of these imports have been sourced from Indonesia, which have served to drive prices of its lower energy coal up.
The Singapore Exchange 4,200 kcal/kg coal contract jumped to US$57.50 a tonne by June 3, the highest since the contract started trading in early 2018. And in a sign that the market has largely ignored the NDRC’s comments, the contract is currently at US$64.50/t.
As for whether China’s move to release coal reserves will ease prices, only time will tell.
However, it is worth noting that its move to release copper, zinc and aluminium from its reserves in mid-June was only partially successful.
While copper prices have eased slightly, zinc prices have actually crept upwards since then while aluminium is trending back up towards the heights it reached in May.
While Australia thermal coal exports to China have fallen off the proverbial cliff, its higher-grade product continues to thrive.
Japan, South Korea and Taiwan imported 14.77Mt of all types of coal from Australia in June, down from 17.05Mt in May but up from the 12.46Mt in June 2020.
India alone imported 7.52Mt of Australian coal in June, up from 6.61Mt in May and just 2.04Mt in June 2020, so while it is unlikely to lead the next commodity supercycle, it is certainly bolstering the fortunes of Australia’s coal sector now.
With no lack of buyers, prices of benchmark 6,000 kcal/kg thermal at the port of Newcastle have steadily risen to about $135.63 per tonne, the highest in 10 years, earlier this month.