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China's coal industry

A Platts.com news and data feature



China's coal industry

A Platts.com news and data feature


Traders weigh up prospects for China's thermal coal market in Q4


By Mike Cooper


The October-December trading period after China's Golden Week holidays is a crucial time of year for thermal coal shippers and traders as this is when they attempt to maximize sales to North Asian utilities preparing for the Northern Hemisphere winter season.


This year's marketing prospects for the key China import market are shaping up to be radically different to the October-December period last year.



CFR South China cargo prices are currently sitting at $49.50/mt on a 5,500 kcal/kg NAR basis, compared with $68/mt a year ago.


"Demand has subsided a little and imports are down," said one market expert, giving his overview of the market for China.


Analysis continues below...


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Import volumes are drastically lower than a year ago. China customs data showed that the country was importing an average of 11 million mt to 12 million mt/month in the Q4 periods of 2013 and 2014.


Average monthly import volumes for bituminous and sub-bituminous thermal coal into China are now running at approximately 7 million mt for the 2015 year to date.


"There ought to be a winter stocking season, but it will not happen this year, or in the near future," was one trader's bleak assessment for Chinese imports.


Tax issues


One issue that is hanging squarely over the Chinese market is the question of whether Beijing might repeal the country's export tax on external coal shipments.


"If China abolishes the 3% export tax, that will stimulate exports," said the trader.


Chinese export volumes from domestic miners to markets in Asia have stayed relatively modest at 3.3 million mt over January-August this year.


This is 16% lower than the corresponding eight-month period in 2014, according to reports.


The obverse of this, is China's tax on imports of thermal coal which applies to Australian, Russian and South African origins at a rate of 6% on the delivered CFR price at Chinese ports.



Indonesian shipments to China are exempt from import tax by virtue of a bilateral free trade deal.


Currently this impost amounts to about $3/mt, and to date has been mostly borne by Australian coal shippers who have lowered their FOB prices to partially absorb its cost.


Market sources said they did not expect the import tax to go until the Australia-China free trade agreement is ratified by Australia's parliament, and progress to date has been slow.


A likely course of events is that the import tax will be lowered by Beijing to 4% in January 2016, and then to 2% the following January, before it is abolished altogether in January 2018, sources said.


"For thermal coal, the tax is likely to be phased out at 2% per year. Australian coal suppliers may get some $2/mt advantage," said a trader.


At current low prices the import tax is a drag on demand, and a deadweight on the market.


Next article: China's coal consumption statistics







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