July 3, 2017 - China decided to reduce imports of coal. This news has not pleased the major producers and especially commodity traders, despite the seeming vastness of the Chinese market. That can be contrasted with the Chinese “reform proposals”, to reflect the journalists of the newspaper The Wall Street Journal (WSJ).
Indeed, China accounts for half of world production and consumption of coal. However, the country has already five years of struggling with excess capacity in the coal industry. However, to solve this problem by reducing its own production – a more expensive: coal mining occupied a huge part of working citizens.
Therefore, the Chinese authorities decided to go the way of limiting external supplies. The scale of the reduction in imports is a mystery. It is known that many small and medium-sized ports in China refuse to accept delivery of coal, but a major sea harbor is still open for its reception.
In the first place China, according to the authors, seeks to limit the import of low-grade, dirty coal. But have this intention and purely economic motives: to lower prices in foreign markets and raise them in the country. Still, the coal industry in China, as in all countries of the world – the loss-making industry and is subsidized from the budget.
This economic strategy is already yielding success. Asian coal futures in the last 10 days lost in the price about 4%. At the same time, coal prices in China rose by 2-4%.
With regard to damage to suppliers, the greatest losses among them, according to the WSJ, will carry Indonesia. From this country to China were large volumes of low-quality coal, especially at the end of last year, when China restricted its own production. The American edition also advises to prepare for losses and Western companies trading in coal, for example, Glencore and Noble. The latter was incorrectly interpreted from a deceptive maneuver of China, reduced production, and now is in a very difficult position due to the depreciating sharply in Asia coal contracts.
Commodities trader Glencore has been prudent. The company plans to invest in deposits of high quality coal. This will be able to pass inspection at customs in China, and in Japan, helping the trader to succeed in the coal business.
But overall market game with China is fraught with unpleasant consequences. Especially in those sectors where the country clearly dominates the planet (ferrous metallurgy, shipbuilding, oil refining, etc.). The more that China demonstrate a complete indifference to the global consequences of domestic economic policies and their unpredictable actions of market regulators.
That’s why the American business newspaper warns its readers: investing in the coal industry these days is risky. Coal for China – yet strategically important fuel. China, according to the authors, is “the world Treasury of coal.” This means that in this field any non-Chinese company will have to play on a foreign field, which increases the risk of injury.