China may ease entry of imported coal to bring down higher domestic prices

Singapore — China may open up its borders to seaborne coal and set price ceiling for Chinese coal in an attempt to cool domestic coal prices, according to a meeting note seen by S&P Global Platts Dec. 15 that took place between China's National Development and Reform Commission, or NDRC and eight state-owned Chinese utilities on Dec. 12.

NDRC was in discussion with Zhengzhou Commodities Exchange to implement measures to limit excessive fluctuations in futures prices, the meeting note said and confirmed by a source close to the matters.

January futures prices in Zhengzhou Commodities Exchange dropped to Yuan 719.20/mt ($109.73/mt) FOB Dec. 15, after jumping to Yuan 753/mt FOB ($115/mt) for 5,500 kcal/kg NAR grade of coal Dec. 10, market sources said.

However, market price for 5,500 kcal/kg NAR Chinese coal were at Yuan 750-Yuan 770/mt FOB ($114.46-$117.51/mt) Dec. 14 while buyers and end-users in China were not hopeful for procuring cargoes at price ceiling of Yuan 640/mt ($97.65/mt).

While there has not been any official document for the meeting notes, there has been an uptick in demand for Indonesian and Russian coal in China, supporting the price jump, sources said.

National Development and Reform Commission was not available for comments.

Chinese utilities shall not procure Chinese coal with 5,500 kcal/kg NAR grade at more than Yuan 640/mt FOB, any procurement for this grade more than the price ceiling shall be reported to NDRC for further research on its coal source, the meeting note added.

Currently, stockpiles at major Chinese utilities were currently totaling 86 million mt, and regional power plants under each utilities shall coordinate coal resources in order to avoid procurement at high prices, it added.

Open up borders

China shall open up its borders to all seaborne coal except for Australian coal, the meeting note said.

Following the circulation of the meeting note, there has been an uptick in trading activities of Indonesian coal and Russian coal over the weekend into China, sources said.

"China's customs do not interfere with our Indonesian and Russian coal imports now, or asking for import quotas now," an utility source said.

"Flurry of Indonesian coal trades were concluded into China, hence offer prices jumped," an Indonesia-based miner said.

Kalimantan coal prices jumped $1.40/mt to $6.40/mt Dec. 14 following the optimism that China may open up its borders, sources said.

Offers for 6,000 kcal/kg NAR Russian coal were heard at $80/mt FOB Dec. 14, up $5/mt FOB from the lowest offer Dec. 11.

Australian coal ban

Meanwhile, NDRC explicitly listed Australian coal as being exempt from the new order, confirming the Australian coal ban reported in October, according to a note by ANZ.

While China held a strong stand against Australian exports including Australian coal in near-term, there has not been any official documents released by NDRC, sources in China said.

China's state-owned power plants and steel mills received a verbal warning to stop importing Australian coal in October, reported by S&P Global Platts on Oct. 9.

Import inspections and custom clearance processes have became more cumbersome following the verbal warning, a source said.

"China has not been distributing coal ban on black and white in the past, at most they are giving verbal notice," a source closed to the matters said.

"China's argument against Australian coal and South African coal has always been quality inferiority," another Singapore-based trader said.

China's customs continued to scrutinize fluorine contents of South African, with so far less than five shipments of South African coal were traded into China this year, a source closed to the matters said.