China could restart import controls on coal as oversupply mounts

CHINA could re-establish import controls on coal, after leading industry groups warned on mounting oversupply in the world’s biggest market for the fuel, according to Morgan Stanley.

The bank said a complete ban is unlikely given China’s obligations to the World Trade Organization, but purchases could be discouraged if the authorities impose delays or inspections on imports, analysts including Sara Chan said in a note. Similar controls were imposed in 2014, 2017 and 2018.

China maintained a cap on coal imports of about 300 million tonnes until 2022, but has blown past that level in the last couple of years due to energy security concerns. The country bought a record 543 million tonnes last year.

Now, demand is falling well short of expectations, resulting in a rapid decline in prices and a continuous drop in mine profitability, the China Coal Transportation and Distribution Association and the China National Coal Association said on Friday (Feb 28). To cope with persistently high inventories of the fuel, miners should control output and importers should curb shipments of lower quality fuel, it said.

Beijing has prioritised coal production in recent years to avoid a repeat of the power crunch experienced in 2021, with Russia’s invasion of Ukraine in 2022 reinforcing the strategy. The policy has been successful in ensuring energy security but has come at the expense of progress on decarbonisation and has led to a spate of fatal accidents at mines.

Surging output and tepid demand have weighed on the market in recent months. The country’s benchmark for thermal coal prices has dropped to 699 yuan a tonne, its lowest level since March 2021, according to China Coal Resource.

Spot prices may soon test the market floor set by government-regulated annual contracts of 675 yuan a tonne, local trading platform ocoal.com said in a note. BLOOMBERG

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