Coal supply still too strong into China

While thermal coal imports have recorded their first YoY fall in sometime, stronger domestic supplies have ensured total steam coal supply into coastal areas is still too strong.  Chinese met coal imports remain huge, not withstanding flat imports from Mongolia, while the return of Chinese coke exports is an unwelcome development for those competing into India.

The 8%YoY decline in thermal coal (including lignite and anthracite) was the first time that Chinese imports have weakened for sometime.  Most of the weakness was concentrated in Indonesian lignite imports, where uncertainties around banning material maybe affecting some shipments to China.

While a reduction in seaborne supply is required to help rebalance the Chinese coastal market, its not sufficient and in May this weakness was offset by stronger domestic supplies.  While domestic shipments are lower than 2011 levels, they are still too high given the weak top down power generation picture.  This meant that total supply was roughly flat YoY.

This appears to still be too strong given stock levels in absolute and days of use continue to go up.  As I wrote about here, this should continue to put pressure on Chinese domestic prices, which are down ~20yuan since the start of the month.

For the optimists, the piece of positive news for thermal coal is that the potential for hydro to be a massive problem for coal has perhaps tempered somewhat, with growth rates slowing sharply on the peak periods of last year.  This, however, is not enough to offset the negative of weak top-down power demand.

The picture hasn't changed too much for met coal, with weak Q3 contracts at $145/t driven by the push of material into China.  If anything, these data are concerning due to the lift in coke exports, which undermines other seaborne competitors.