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China may begin clearing stockpiled Australian thermal coal imports into its domestic markets as demand ramps up across the country, according to Wood Mackenzie.

With electricity demand increasing with dropping temperatures, and the Chinese Government restricting the amount of power gencos (power generation companies) can provide their customers, a growing portion of China has experienced power outages over the past fortnight.

Wood Mackenzie principal analyst Rory Simington said a whole lot of Australian coal is set to be released from stockpiles to ease the power crunch.

“We estimate around five million tonnes (Mt) coking and 3Mt of Australian thermal coal stockpiled in Chinese ports could be cleared into China’s domestic market,” Simington said.

“The quantity of stockpiled thermal coal is not sufficient to have a significant impact on prices in China’s domestic market. Coking coal’s quantity is more significant to China’s domestic market and could lead to easing in domestic price.”

The restrictions throughout Chinese domestic markets have caused China’s seaborne thermal coal value to more than double the price seen last year, recently hitting $US230 per tonne ($313 per tonne).

This correlates with a significant drop in coal inventories for China’s major gencos, according to Wood Mackenzie managing consultant Yu Zhai.

“The market tightness will moderate to some extent accordingly. The coal inventory of key generation companies (gencos) dropped to 49Mt by the end of August which is roughly 30Mt lower than last year,” Zhai said.

“As gencos suspended traditional restocking in September this year, we expect the gap of inventory in September or early October to widen to 40Mt or even more year-on-year.”

Wood Mackenzie research director Alex Whitworth said there were positive signs ahead for Australian coal producers, as China eases restrictions on coal-fired power.

“The government is already moving to increase domestic coal supply and is likely to make some modest upwards adjustments to regulated on-grid coal tariffs and end-user tariffs later in the year to ease pressure,” Whitworth said.