China coastal coal supply

With trade and coastal shipment data now available for July we can gauge just how strong thermal coal supply has been into coastal China.  In July growth rates were very strong against the very weak comps of last year.  This is despite prices being almost 20% lower.

Imports were stronger in July, although this seems to be a timing issue following much weaker imports in June.  Over the two months, Chinese imports are down a little year on year.

When adding the two together, Chinese coastal supply has been stronger, although still below 2011 levels.

If we look at the end of 2012, most of the additional supply into China from September to December came from imports, with coastal shipments peaking in September.

Given coal burn is likely to be stronger this year, utilities will need more supply than last.  Increasing this pressure is that utility stocks are much lower than this time last year, with stocks at key plants down by ~21mt.

It seems unlikely that domestic supply will be considerably stronger than last year.  Mine stocks are high at key producers at roughly 24mt higher than where they were in 2011.  Rapid destocking could push up domestic coastal supplies without requiring higher prices.

But I think it would a mistake to assume that this can offset dropping inventories out power stations.  To be sure, its the rate of destocking that is just as important as the level of stocks and inventory at power stations is falling much fast than they have risen at mines.

So it seems that China will at least need as much of an increase in imports as it did in Q4 last year, with Chinese imports ~55mt. annualised higher in Q4 than they were in Q1.

Can the seaborne market supply this?  At current prices, supply won't be coming from the US or Colombia, while Russian tonnes into Asia won't be much strong if at all.

While Australian growth has been strong in the YTD, most of that has been due to improvements that came in the 2H12, so growth should be a little slower in 2H13.  South Africa may have the propensity to push more tonnes into China given weak demand from India.

Indonesian supply growth continues to look solid and recent growth rates have been phenomenal. But the point is that they will need to provide additional tonnes into China than they are presently coming into year end.

Overall I think its encouraging for the seaborne market that Chinese coastal coal supply has been very strong, but we are still seeing quite a bit of destocking at an accelerating rate.  This adds to pressure for more supply into Q4, which will in all likelihood require higher prices.