Dry Bulk

Chinese coal imports to rebound

Jeffrey Landsberg from Commodore Research is seeing more positive signs from the People’s Republic

Early this year there was talk of the Chinese government desiring to have 2020’s coal import volume be capped at 2017’s total. Imports in 2017 totalled 271.3m tons, while last year they totalled 299.6m tons.

Often the Chinese government’s targets and predictions do not come to fruition, but if China’s coal imports were to total 271.3m tons this year, this would equate to a year-on-year decline of 28.3m (-10%). At present, there remains talk of capping coal imports at 2017’s 271.3m total, but we are also hearing from our sources in China that coal imports could easily be allowed to climb to as high as 300m tons. Overall, we believe it is much more likely that Chinese coal imports will be allowed to climb to at least 300m tons as power plant and port stockpiles remain below 2019 levels, coal-derived electricity generation growth has been exceeding domestic coal production growth, and as

coal import quotas have already been increased in some northern provinces.

Going forward, we believe it is extremely likely that China’s coal imports will total much more than 271.3m tons this year. The first eight months of this year have seen Chinese coal imports total 220.9m tons, and a 2020 cap of 271.3mn tons would see imports in the final four months of the year total only 50.4m tons. This would equate to a monthly average of only 12.6m tons, while imports during the first eight months of this year averaged 27.6mtons. Already there is concern of winter coal shortages, and this is a significant factor behind our bullishness for coal imports. Power plant coal stockpiles are low and much more coal is needed to be stocked ahead of the winter. China’s power plant coal stockpiles have recently fallen to a level that is only able to meet 17 days of demand, which marks a low not seen since January. Coal port stockpiles also remain below last year’s level.

Overall, an increase in Chinese coal imports would be very supportive to the dry bulk market. China’s iron ore import prospects for Q4 also remain very encouraging to us (and we remain particularly bullish for Brazilian iron ore exports prospects). Also encouraging for the longer term is that it was recently reported that China will be building up its reserves of commodities as part of its next five-year plan in 2021 - 2025. We expect that this will include grain, iron ore, and coal. Already grain purchases have been surging in recent months and we do not expect that this will end anytime soon. We expect that China’s demand for coal imports will also rebound soon, and that both iron ore import demand and grain import demand will remain strong. China has remained a bright spot for the dry bulk market in recent months, and we anticipate that overall Chinese import demand will continue to be a significant driver of dry bulk strength. ●