LAUNCESTON, Australia (Reuters) – China’s coal imports soared in January, more than tripling from the prior month to 33.5 million tonnes, but there are compelling reasons to treat this outcome with caution, including weakness in benchmark Australian coal prices.
January’s coal imports were the highest in five years, rising 228 percent from the weak 10.23 million tonnes reported for December.
It’s a characteristic of commodity markets that there isn’t always a straight line between supply and demand and prices, and the resurgent buying by the world’s top importer of the polluting fuel is a case in point.
It’s always worth being cautious about commodity imports around the Lunar New Year festival, as the week-long holiday in China tends to distort the data in the first two months of the year.
This year the new year fell in early February, meaning there was likely some pulling forward of coal import demand as traders brought in cargoes ahead of the holidays.
Analysis is further complicated by signals from the authorities in Beijing toward the end of last year, when they made it clear they wanted to keep coal imports to the same level in 2018 as they were in 2017.
While this didn’t quite work, it did cause a dramatic fall in imports in December, which also may have resulted in some cargoes being delayed until January.
Given there are solid reasons to be somewhat skeptical that January’s import strength represents a new uptrend for China’s coal imports, it’s hardly surprising that thermal coal prices have been slipping in Australia.
The price of coal at Newcastle port, as assessed by Argus Media, fell to $95.99 a tonne in the week ended Feb. 10, the lowest since May last year.
The price is also down almost 20 percent from the seven-year high of $119.74 a tonne, hit in July last year.
But while prices for Australian thermal coal have struggled in recent months, the opposite is true for Indonesian coal, with the Southeast Asian nation’s lower-energy cargoes enjoying strong demand.
Indonesian coal with an energy value of 4,200 kilocalories per kg, as assessed by Argus Media, rose to $34.45 a tonne in the week ended Feb. 8.
The price has climbed 19.4 percent since hitting a 28-month low of $28.85 a tonne in late November.
This indicates a likely shift in buyer preferences from higher-quality Australian coal to lower-quality Indonesian supplies.
In China, Indonesian coal is often used as a blending feedstock with domestic supplies, as the low sulfur content offsets the lower energy value.
The popularity of Indonesian coal in China can be seen in the vessel-tracking and port data compiled by Refinitiv.
In January, China imported 12.3 million tonnes of Indonesian coal, the highest monthly total since Refinitiv started monitoring in January 2015.
This was almost double the 6.8 million tonnes recorded in December, and also well above 8.7 million tonnes in November, the shipping data showed.
Australia also boosted its shipments to China in January, with imports rising to 7.9 million tonnes from December’s 5.8 million.
However, the January total was more or less in line with November’s 7.8 million tonnes and only slightly above the 2018 average of 7.24 million per month.
What the shipping data shows is perhaps an emerging trend for the world’s two biggest exporters of coal, with Indonesia seemingly gaining the upper hand over Australia, at least as far as China is concerned.
Editing by Richard Pullin