Rise of China’s Xinjiang as coal hub undercuts climate goals
Output has surged 22% this year, the fastest growth of any region in China.
(The opinions expressed here are those of the author, Clyde Russell, a columnist for Reuters.)
Thermal coal’s rally to 13-year highs in Asia has done little to dampen overall demand, but the region is increasingly becoming split between those countries willing and able to pay high prices, and those who are cutting now unaffordable imports.
Imports of thermal coal in wealthier north Asian countries, such as Japan, South Korea, China and Taiwan are set to record month-on-month increases in August, with some reaching the most this year, according to vessel-tracking and port data compiled by commodity analysts Kpler.
However, the less-developed nations of south Asia, such as India, Pakistan and Bangladesh are likely to see lower imports of the fuel used to generate electricity.
In contrast to the strength in north Asian buyers, imports in south Asia look set to fall
Prices of thermal coal have surged in Asia since September last year, when demand started to recover after the initial economic lockdowns across the region to try and combat the coronavirus pandemic started to lift.
The weekly index for benchmark high-grade Australian thermal coal at Newcastle port rose to $170.74 a tonne in the week to Aug. 27, according to assessments by commodity price reporting agency Argus.
The fuel has surged 268% since its 2020 low of $46.37 a tonne in early September and is trading at the highest since July 2008, closing in on the record of $195.25, according to Argus data.
Lower-quality Indonesian coal with an energy value of 4,200 kilocalories per kilogram has also soared, rising 222% since its 2020 low in September to end the week to Aug. 27 at $73.04 a tonne, a record high.
High-grade Australian thermal coal is favoured by utilities in Japan, South Korea and Taiwan for its energy content and lower impurities.
China, the world’s biggest coal importer, and second-ranked India, have tended to buy more lower-grade Indonesian coal, with Chinese utilities using it as a blend with domestic coal with higher impurities, while India bought it because it was cheaper and geographically closer than alternatives.
That trade has switched around in recent months given Beijing’s unofficial ban on importing Australian coal as part of an ongoing political dispute with Canberra.
China is buying higher volumes of Indonesian coal, bidding up the price and encouraging Indian buyers to switch to mid-quality Australian thermal coal, which had been popular in China prior to the ban being implemented last year.
While the coal flows around Asia, the top-importing region, have been affected by China’s prohibition on Australian cargoes, the main story so far in 2021 has been one of strong demand amid increasing electricity production as economies start to recover from the pandemic.
But the recovery has been uneven, and may be starting to show the impact of the surge in prices.
China’s imports of thermal coal in August are estimated by Kpler at 24.35 million tonnes, up from 20.57 million in July and the highest so far this year.
Japan, the world’s third-biggest coal buyer, is expected to see thermal coal imports of 10.48 million tonnes in August, up from 10.18 million in July and the strongest month since January.
South Korea is expected to have shipped in 7.40 million tonnes in August, and while this is down from July’s 8.49 million, it is still the second-highest month this year, according to Kpler data.
Taiwan’s August imports are estimated at 6.33 million tonnes, up from July’s 5.12 million and the highest since Kpler started compiling coal data in January 2017.
In contrast to the strength in north Asian buyers, imports in south Asia look set to fall.
India is forecast to import 8.19 million tonnes of thermal coal in August, down from July’s 8.72 million.
These past two months have been the weakest for India’s thermal coal imports since June last year, according to Kpler data.
Pakistan’s August imports are on track for 1.27 million tonnes, down from July’s 1.53 million, while Bangladesh is expected to import just 163,015 tonnes in August, down from July’s 212,612 tonnes.
Bangladesh’s August imports are the weakest since May last year and are sharply lower than the recent peak of 1.46 million tonnes from December last year.
Overall, the data shows that thermal coal demand remains robust in north Asia and is weakening in south Asia.
The problem for south Asian buyers is that demand is strong enough in north Asia that total volumes are still rising, suggesting that prices will be in no hurry to end their current rally.
(Editing by Christian Schmollinger)
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