In 1Q22, China imported only 51.8 MMT of coal. This figure not only represents a decline of 16.6 MMT (-24%) vs 1Q21 but a 41.1 MMT contraction vs 4Q21(93 MMT), the second largest quarterly decline on record (4Q19 vs 3Q19: -46.9 MMT). All the loss was in thermal coal (-17.6 MMT) with a combination of factors responsible for this reduction. Indonesia is now overwhelmingly the largest supplier of coal to China with a record 196 MMT imported last year. So, when the Indonesia government abruptly halted coal exports in January, China had no realistic alternative supplier at such short notice with shipments from Indonesia in 1Q22 consequently down 16.1 MMT y-o-y at 28.5 MMT. High international coal prices this year have also reduced the incentive for cheaper imports. With prices currently in the region of $300-350 dependent on its calorific value they are comfortably ahead of the 4Q21 average price $186/tonne when crucially international coal remained cheaper than the Chinese domestic coal price, thus stimulating such high imports.

Clearly energy security is key and as of 4Q21 China committed itself to a policy of rapidly expanding domestic coal production amidst rapidly rising energy prices. After a record 4.07 BMT of domestic coal production in 2021, China’s output of almost 1.1 BMT of coal in 1Q22 is astonishing, representing a 124 MMT (+13% y-o-y) increase. Putting it into perspective domestic coal production in March hit a monthly record of 396 MMT, 72 MMT more than China imported during the entirety of 2021! With coastal coal movement also running at record levels (2021 – 810 MMT + 60 MMT y-o-y) this might also explain why Chinese owners were so active in secondhand market for sub-Cape tonnage during 2021. This policy of rapidly expanding domestic coal production looks set to remain in place for the balance of 2022.

By contrast, 1Q22 met coal imports increased slightly to 12.3 MMT (+1mt / +9% y-o-y). However, discounting the overland trade with Mongolia as well as the long-held 2 MMT of Australian met coal recently released by customs, total seaborne shipments stood at 8.2 MMT in 1Q22 (+3 MMT / +58% y-o-y). China’s release of Australian met coal indicates a tightening in its domestic stockpiles rather than a reproachment with Australia, so will China import cheaper Russian coal? At 3.3 MMT in 1Q22, Russia has not only increased shipments to China by 133% (+1.9 MMT) y-o-y but has now displaced USA as the largest seaborne supplier of met coal to China.

A significant cutback in overall Chinese coal imports would of course negatively impact the dry bulk market in the Pacific but with energy usage in China still running at record levels, a shortage of international supply thus limiting imports is perhaps more pertinent this year. There are of course ongoing concerns about the overall health of the Chinese economy going forward which might serve as a drag on Chinese industrial production and ultimately demand for energy. On Tuesday, the IMF cut China’s GDP forecast for 2022 from 4.8% to 4.4%.