Chinese domestic coal supply displacing thermal imports?

Chinese thermal coal imports have tailed off in the past few months, domestic supply has been surprisingly strong.  This is a large restraint on prices.

The fall Chinese coke production is pressuring domestic coking coal supply, with some signs of building inventory at mines and some supply cuts.  Chinese imports of met coal bounced back in April, particularly from Mongolia.  A continued push of seaborne supplies into China is likely to keep prices at low levels.

As the first chart shows, Chinese thermal coal imports are now below last years levels after surging earlier in the year.

This is actually a good sign of better balance for the seaborne market, as it suggests less of a supply push into the largest swing factor for demand.

But while imports have slipped, we have actually seen a healthy increase in domestic shipments in the last few months.

This is a bad sign, as this is theoretically the most expensive supply in the global coal chain.  If it is still growing, it suggests current prices are not rationing the oversupply.

It's also interesting that supply is growing from ports where infrastructure challenges are greatest. Tianjin, which receives the last amount of trucked coal, has seen ~33%YoY growth in shipments in the last few months.

So imports have dropped as a proportion of total shipped supply to coastal Chinese provinces in the last few months.  But somewhat troubling, this has been because domestic supply has displaced import demand.

Met coal imports bounced above last years levels and shipments from Australia and Mongolia in particular increased sharply from the very low levels seen last month.

This is perhaps partly a function of the large degree of destocking of coke, which has been seen in surveys of steel mills and by comparing coke output to growth in pig iron.

Interestingly, pig iron production has been quite a bit weaker than crude steel output.

It's difficult to know whether this has lead to a reduction in mine supply, as we don't have a very good understanding of stock at mines. Some data sets suggests it is rising, although its hard to confirm how important this is given we have not been in this position for a such a long time.

It seem though that coking coal prices have found a bottom. How quickly it climbs though is uncertain and its probably better to not hold your breath.