China ended its prolonged strict lockdown measures significantly later than the rest of the world, after three years of its tough stance on a zero-covid policy and agonising restrictions, which had brought about widespread frustration, criticism and anti-government protests. In early December 2022, the government started easing restrictions domestically and re-introduced the entry of international travellers in 2023. The reopening of the major economy brought about high hopes of the recovery of the dry bulk shipping market, yet charter rates have failed to soar as many had hoped. Yet, amidst a market lacking clear direction thus far in the year, China’s import appetite has not decreased, with one major driver being the widely-used fossil fuel, coal.
China’s coal imports surged in 2023 as part of Beijing’s efforts to ensure energy security and keep prices affordable for power generators, in addition to stocking up in preparation for the reopening of its economy. China’s imports in the first seven months of 2023 were nearly twice of the same period 2022, the highest on record, with Thermal Coal volumes accelerating at a quicker rate than Metallurgical Coal volumes. Heatwaves in China and reduced hydropower generation have spurred imports, bringing about expectations of record-high volumes this year. Domestic commodity prices have been rising and miners have prioritised quantity over quality to hit production target rates, leaving insufficient domestic supply of coal with higher calorific value and necessitating imports. It is also believed that low international coal prices have led traders to arbitrage on the spread between domestic and international prices. It remains to be seen if the high volumes will sustain through the year, yet downside risks could emerge towards the end of the year if inventories continue stacking up.
The informal ban on Australian Coal from late 2020 to May 2023 prompted a realignment in the trade patterns of Metallurgical Coal as Australian shippers sourced alternative buyers while China increased its reliance on its neighbouring sources. Stable supplies of Australian volumes have been heading to India to support the rampant expansion of its steel industry with flows between the two countries being facilitated by the Free Trade Agreement (FTA) introduced late last year, while quantities heading to China have been starkly reduced. Additionally, Western sanctions on Russia’s export of energy commodities arising from the Russia-Ukraine conflict has allowed China to gain a larger market share of Russia’s Metallurgical Coal exports, while improved transportation networks between Mongolia and China have facilitated coal transportation. Amidst growing bilateral cooperation between the two countries, further efforts are being made to expand trade such as potentially establishing 24-hour land port operations as Mongolia seeks more business opportunities with China and its insatiable appetite for coal. A study from Greenpeace highlighted China’s priority for energy security over cutting fossil fuel consumption, leading to its approval of over 50GW of new coal power in the first half of 2023. Subject to Mongolia’s supplies, the coal trade between the two countries could potentially flourish in the years to come for as long as coal remains an essential commodity in China’s books.