China has removed import tariffs on various coal grades as part of its efforts to maintain adequate supplies amid global disruption caused by the Russia-Ukraine conflict, according to a government document seen by S&P Global Commodity Insights April 28. The tax cut will be effective from May 1, 2022, till March 31, 2023, the document read. The tariff has been reduced to zero from 3% earlier for unformed anthracite, coking coal, unformed lignite, and briquette lignite, according to the document. Tariffs for other bituminous coal, other unbridged coal and similar solid fuels made from coal have been reduced to zero as well from 6%, 5% and 5%, respectively. “I think this is a bold move, mainly to secure more coal from Russia which is at decent discounts. But as far as prices are concerned, they will likely remain high given the volatility in the markets across the world,” an India-based trader said.

The Chinese government’s decision to slash import tariffs comes amid an upheaval in global coal trade after Russia invaded Ukraine in February, following which the European Union and Japan imposed a ban on Russian coal in April. This has led to a surge in coal prices of other origins such as Australia, Indonesia, the US, South Africa, and Columbia due to additional demand from the EU. “The document says the rule is about HS codes, so it is applicable to all origins,” a South Korea-based source said. “This should help Russian coal demand more than other origins because it is already at a discount to other origins.”

Some market participants said the move may weigh on domestic coal prices as imported coal would become cheaper. Chinese demand for imported coal had weakened over the last few weeks as power consumption fell amid pandemic-related lockdowns. China’s government had also imposed a price cap on domestic 5,500 kcal/kg NAR coal price at Yuan 550-770/mt, which is to be implemented from May 1. Traders anticipated that domestic coal prices would fall and had refrained from purchasing in the seaborne coal market. “The removal of tariff should ideally boost imports, but since domestic production is also robust, and with COVID-19 restrictions, we will have to wait and see how this impacts the market,” an Indonesia-based trader said. The domestic 5,500 kcal/kg NAR price was around Yuan 1,100-Yuan 1,200/mt on April 27, according to market sources.

In the metallurgical coal market, the outlook was mixed, with some expecting limited impact given the current wide domestic-seaborne spread at $50.06/mt April 27, while others said the cost savings from the removal of import tariff would not be sufficient to entice more buying interest in the near term. Some sources said that the seaborne sellers might be able to offer at a higher level with the removal of the tariff, adding that this might improve liquidity of non-Australian coking coals into China.