(EnergyAsia, May 11 2010, Tuesday) --- China’s coal import level is expected to decline this year as a result of a return to price differentials for thermal coal between Chinese domestic and rising seaborne coal prices, said Wood Mackenzie’s coal consultant Paul Manley.

Mr Manley said: “Even though in January and February of 2010 there was a continuation of the trend in 2009 of record levels of thermal coal imports in China, our view is that in 2010 overall Chinese thermal coal import levels will be lower, marking 2009 a unique year.”

“The price differentials that were evident in 2009 and were key to higher Chinese import levels in 2009 have switched again and we have seen rising seaborne prices, which hit port cleared prices of RMB908 per ton in March, potentially moving back to pre-2009 patterns. We expect current seaborne thermal coal prices to continue to rise through 2010 as the world recovers from the global financial crisis. 

Recovery of traditional markets such as Japan, Korea and Taiwan is expected to continue throughout the year which, combined with increasing volumes of seaborne thermal coal demand by Indian coal buyers, are likely to support price increases.” 

He added that while the current were initially matched by China’s domestic thermal coal prices, falling domestic demand and prices have caused a large differential which would result in lower imports compared to last year. Policy changes made in 2009 that limit exports are expected to continue, keeping the exports below historical levels.

Wood Mackenzie, the Scotland-based energy consulting firm, said the opportunistic buying by Chinese thermal coal buyers is one of the key factors that made 2009 unique.

Mr Manley said: “We saw a switch in the price differential between Chinese domestic coal prices and seaborne coal prices. While both historically moved in tandem, with seaborne prices exceeding domestic prices, this switched in September 2008 when seaborne prices had a dramatic dip. 

“The global financial crisis led to a drop in demand by major international players, which saw seaborne prices plunge to a 2009 average port cleared price of RMB692 per tonne, while China’s domestic coal prices averaged port cleared prices of RMB707. China’s domestic coal price remained higher due to the softer impact of the global financial crisis on China and a continuous healthy demand for coal.”

As a result, Chinese coal buyers capitalised on low coal prices in the seaborne market causing the seaborne thermal coal imports to China from Australia, Canada, Indonesia and Russia to rise.

In 2009, imports from Australia and Indonesia increased almost ten times and three times respectively compared to the previous year. The increase was attributed to the strong Chinese demand and opportunistic buying, which helped provide relief to the depressed industry.

“Past trends have shown that Chinese suppliers tend to price high quality seaborne coal out of the market. 

Partnered with lower domestic power demand as temperatures rise in Spring and a spate of industry slowdowns post-Spring Festival, we do not expect import levels to reach that of 2009,” Mr Manley said.