Something strange is happening at China's coal ports. Stockpiles of the black stuff have dwindled to their lowest levels in records dating back to 2010.
Perhaps that's not surprising, given the country's stated desire to reduce its dependence on carbon-intensive fuels. If China's coal consumption goes down, then surely the amount sitting in ports waiting to be consumed goes down as well?
Well, perhaps. But even relative to its diminishing appetite, China's coal stockpiles are starting to look rather thin. The country had just 36 days' supply at the end of January at rolling three-month-average rates of consumption. That's the thinnest cushion since January 2014, the data show:
This looks like good news for coal miners dependent on Chinese consumption. A shortage of supply is generally a good thing for prices, and sure enough, the price of coal at Qinhuangdao, China's biggest import harbor for the stuff, has been ticking up from depressed levels:
Don't get too optimistic. While the higher-quality imported coal can hope to get better prices thanks to lower levels of pollutants such as sulfur, ash and mercury, that spread has been narrowing as the grim conditions in China's domestic coal industry drag down the cost of local product:
Of 28 Chinese coal companies tracked by Fitch, 20 reported losing money in 2015, with the group posting an aggregate 4 billion yuan ($612 million) of losses compared with 37 billion yuan of profit the previous year. Efforts by Beijing to address oversupply in the industry are being hobbled by poor implementation at lower levels of government, according to Fitch analyst Alvin Cheng, who forecasts prices will continue to fall through this year.
A slower pace of consolidation in the local industry could be bad news for offshore companies. China became a net coal importer only in 2009, and the 190 million metric ton reduction in apparent coal demand during 2015 was greater than the 151 million tons of net coal imports. A comparable consumption drop this year risks much deeper damage to overseas exporters that are already suffering.
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