For January and February 2022, Chinese coal production rose to 687 MMT. This is 11.2% up YOY from the 618 MMT in the first two months of 2021. This signals potential full year increase in production of 455 MMT compared to the country’s roughly 300 MMT of coal imports in recent years (peaking at 323mt in 2021). Hence, the current run-rate production more than covers the China’s coal import needs at an accelerating pace up from the 8% YOY increase in coal production seen in Q4 2021. Of note, industry sources suggest some of the incremental volumes could be used to bolster China’s coal stocks to avoid periods with elevated price levels, as seen in 2021.

For steel and pig iron production, the two first months of 2022 saw production of 158 MMT (down 9.7% YOY) and 132 MMT (down 8.7% YOY), respectively. Of note, both steel and pig iron production volumes were above their historical four-year averages. Due to production curbs ahead of the Winter Olympics, soft production figures were widely anticipated, and we would expect a continuation of recent covid-related lockdowns to impact near-term production and consumption figures – potentially prolonging the soft patch seen for the world’s largest dry bulk importer.

The Capesize market has benefitted from potential for backhaul cargoes of coal from Australia into the Atlantic before returning with iron ore cargoes into the Pacific. According to recent reports, the backhaul rates have been boosted by coal trade from Australia to Europe on the back of elevated energy prices. Of note, coal imports from Russia to OECD Europe equaled roughly 75 MMT in 2021, based on numbers from the EIA. Coal-fired power generation increased 11% YOY in Europe from 2020 to 2021 as higher gas prices and recovering demand worked against the relative shift to gas in power generation. Given the current situation, we would expect European coal imports to continue increasing as energy commodities remain in short supply.

A back of the envelope calculation using Europe’s total coal-fired power plant capacity of 162GW and power production derived from coal of roughly 458TWh during 2019, we estimate that Europe’s coal-fired power plants should have approximately 960TWh available to generate additional power. This translates into roughly 500 MMT of additional high-quality coal needed if Europe should fully utilize its coal-fired power plants. Hence, the potential for coal imports to Europe are meaningful when compared to 50-100 MMT annual imports of seaborne thermal coal to Europe between 2016-2021.