By Amanda Lee

October 19, 2020 - China, the world’s largest producer and consumer of coal, is facing a supply shortage heading into winter amid tighter restrictions on imports, including a reported freeze on coal from Australia.

The world’s biggest miner BHP Group said on Wednesday it had received deferment requests from Chinese customers, after reports that Beijing had imposed a ban on Australian thermal and coking coal as trade tensions intensified between the two countries.

China is facing shortages of coal heading into winter due to import restrictions and recent safety and environmental inspections.

Photo: AFP

Analysts said China’s domestic coal production has slowed this year, while demand has surged because of large-scale infrastructure development to steady its coronavirus-damaged economy.

Overall supply of coal is tight due to the import restrictions and recent safety and environmental inspections, analysts said, with the shortage felt most prominently in the northeast of China.

China, which has a state-subsidised central heating system for homes in the north, is likely to burn more coal over what is expected to be a colder than usual winter.

The National Climate Centre has forecast an average drop this year of 2 degrees Celsius (35.6 Fahrenheit) in the northeast – the coldest part of the country – compared to last year.

Ye Chun, a deputy secretary at the China Electricity Council, which represents the power industry, estimated the northeast could have a shortfall in thermal coal of about 37 million tonnes.

“On the whole, the situation of coal security this winter is not optimistic,” Ye was quoted as saying last month in China Energy News, a publication owned by the state-backed People’s Daily.

“It may be the most tense year for the supply and demand of electricity and coal since 2016.”

A report by Cinda Securities this week said coal production had been slashed following a new round of safety and environmental protection inspections that began in September, triggering shutdowns and temporary closures of mines in Shanxi, Shaanxi and Inner Mongolia, which together produced 69 per cent of China’s coal last year.

“Driven by the demand from power plants, chemical and building materials, and coal inventory for winter in the northeast, the cases of empty trucks waiting for coal to be loaded in certain mining areas are serious,” the firm said on Monday.

“This [supply crunch] has supported the continuous rise of coal prices.”

Russia, a major supplier of coal to China’s northeastern region, said in August its overall exports of coal were likely to fall by 10 to 22 per cent this year from a year earlier, due to weaker demand and measures taken to control the spread of the coronavirus pandemic.

To tighten supply, China has imposed caps on coal imports through import quotas and quality restrictions, which has seen import growth decline since May, according to figures from the National Bureau of Statistics.

However, provinces in the north have begun relaxing import quotas following concerns there is insufficient coal stockpiles to heat homes. Jilin province has been granted an extra 5 million tonne import quota to ensure sufficient supply for its central heating system, according to a notice by the Jilin branch of the Ministry of Industry and Information Technology dated October 9.

“The fear is more that there would be a real shortage if we did get a cold winter,” said Dr James Stevenson, global research head for coal, metals and mining at economic consultancy IHS Markit. “There’s been a bit of quota relief and we expect more [to come].”

“In the last couple of weeks, the production has improved in Inner Mongolia. The government there has been pushing for extra production. However, there is still a shortage, so definitely not out of the woods yet.”

Stevenson said China has imposed import restrictions to keep domestic coal prices within a certain range to ensure miners make a profit and consumers like power generators were getting reasonably-priced stock.

“There is a sense of not wanting imports to cost domestic miners’ jobs. In general, imported coal in China, at least in the southeast, is cheaper than domestic coal,” Stevenson added.

Analysts at Fitch Solutions said in mid-September that coal shipments into China were likely to remain soft in the coming months because of government efforts to protect domestic coal miners.

Beijing’s worsening relationship with Canberra was also likely to dampen imports from Australia, China’s second largest supplier last year, Fitch said.

“Lengthy delays [of up to three months] in port clearing of Australian thermal coal, due to heightened inspections and import curbs, incentivising buyers to switch to other suppliers in 2019,” Fitch said in its September report.

“This should remain the case in 2020-2021 as geopolitical tensions between Australia and China roll on.”