--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, July 29 The sharp drop in
China's coal imports in June helped to finally bring growth in
imports closer to that for power output and was validation of
the view that inbound cargoes had been unsustainably high.
While a pullback in imports had been expected for several
months, the breakdown of the customs data shows the pain hasn't
been evenly spread amongst China's major suppliers.
Total imports in June were 18.037 million tonnes, down 22
percent from May and 19.6 percent from the same month a year
This was enough to drag the year-to-date growth in coal
imports down to 13.9 percent in June from May's 22.3 percent.
The rate is also less than half the 28.7 percent jump in imports
achieved in 2012 over 2011.
Part of the reason imports had been strong in the first five
months of 2013 was that prices were competitive with domestic
Falling domestic prices as demand for power generation eased
caught up with imports in June.
But it's not necessarily the higher-cost suppliers that are
being squeezed out of the market.
Of China's major suppliers Australia is still managing to
post impressive gains in volumes.
China bought 4.928 million tonnes of coal from the world's
biggest exporter in June, a gain of 31 percent on the same month
in 2012, and taking the year-to-date total to 38.362 million
tonnes, a gain of 46.5 percent over the same period last year.
Australia has overtaken Indonesia as the top supplier of
coal to China, with shipments from the Southeast Asian nation
totalling 35.263 million tonnes in the first half, a gain of
just 8 percent on the same period last year.
The landed cost of Australian coal was $108.90 a tonne in
June, while Indonesian was $80.93.
However, almost 35 percent of the coal shipped by Australia
to China in the first half was higher value coking coal, used in
But even looking at the customs category of non-coking,
bituminous coal, which is mainly used for power generation, and
Australia was still a clear winner.
First-half shipments of this type from Australia totalled
21.921 million tonnes, a gain of 35.9 percent, while those from
Indonesia were 18.565 million tonnes, up 32 percent.
In June, the cost of bituminous supplies from Australia was
$94.25 a tonne and those from Indonesia $79.60 a tonne.
While the price difference can be mainly explained by the
higher energy value of Australian coal, it's interesting that
Chinese buyers appeared willing to pay more, and take higher
volumes, of the more expensive product.
This may be explained by Australian coal becoming relatively
cheaper than Indonesian cargoes.
In December last year, Australian bituminous coal cost China
$102.51 a tonne, meaning by June it was $8.26, or 8 percent,
In contrast, the same category coal from Indonesia was
$79.33 a tonne in December, meaning that by June it was actually
slightly more expensive.
The benchmark Australian spot price, the weekly globalCOAL
Newcastle port index, has been declining since its
2013 high of $96.09 a tonne on Feb. 8, and hit $77.04 on July 5,
the lowest since November 2009.
The index recovered slightly to $77.55 a tonne in the week
to July 26, but at that level coal prices are below the cost of
production and transport to the port for many mines.
However, Australian miners are likely to continue producing
as the loss from maintaining output is less than that for
stopping, given the prevalence of take-or-pay shipping
These are fixed costs for miners that have to be paid
regardless of whether volumes are actually transported, and they
became common in order to give financial backing to the
developers of multi-billion dollar railway and port
However, the pain threshold may be about to be reached,
according to analysis by consultants Wood Mackenzie.
About 4 million tonnes, or 1 percent of Australian output,
is at risk of being closed with a coking coal price of $171 a
tonne and a thermal coal price of $92 a tonne, Wood Mackenzie
said in a July 16 report.
This rises to 45 million tonnes if coking coal falls to $122
a tonne and thermal to $77 a tonne, and these price levels have
largely been reached.
The longer prices remain depressed, the more likely it
becomes that Australian producers will be forced from the
So far, the China customs data shows that Australia has
managed to increase its share of imports to the world's biggest
consumer of the fuel, but probably at the expense of
The losers among major suppliers include South Africa, which
has seen exports to China decline 16.5 percent in the first half
over the same period in 2012, and Mongolia, which has recorded a
31 percent drop.
Vietnam's shipments have slumped 11.1 percent and those from
the United States have increased by a modest 3.7 percent, a far
cry from the 90 percent gain in 2012.
The United States supplies mainly coking coal to China, and
the cost was $156.59 a tonne in June, about $10 more than
cargoes from Australia.
This makes it likely that on coking coal, the U.S. mines
will likely be pushed out of China first.
Even though Mongolia is the cheapest source of coking coal
for China, its main constraints are logistical and political,
which makes forecasting volumes for the second half of 2013
On thermal coal, if prices remain at current levels, it
becomes more likely Australian shipments will decline, as well
as those from Russia, which is also a higher-cost supplier to
But much will depend on whether Chinese buyers are prepared
to buy more for higher-quality Australian coal, or whether they
are happy for this source of supply to exit the market, leaving
cheaper Indonesian cargoes as the default option.
(Editing by Joseph Radford)