China’s plan to moderately increase coal imports to meet its heightened demand this winter have raised questions on how long it can sustain its ban on coal shipments from Australia. The world largest coal consumer has been facing a severe power supply crisis, with more than half of the country enduring power cuts as the nation comes to grips with a litany of issues, ranging from depleted coal inventories to mine shutdowns, international trade wars to far-reaching consequences of its national energy policy. The power crunch has been complicated by Beijing’s decision last year to ban imports from Australia, the world’s second-biggest exporter.

China’s top economic planner, the National Development and Reform Commission, said this week it would “take multiple measures to strengthen the adjustment of supply and demand” of electricity and stressed on imports to meet the rising demand for the raw material. It means China will increase purchases from traditional sources and turn to imports from other sources such as South Africa, Colombia, the US and Canada. But will Beijing feel extra pressure to lift the Australian coal ban?

The talks come as Australian coal in Chinese ports, which has not been cleared by customs, is no longer being offered for reshipment as there are rumors that the raw material is expected to be allowed for unloading into ports amid tightness in coal supply. Coal still accounts for two-thirds of power generation in China with nine-tenths of the country’s coal being sourced domestically from Shanxi, Shaanxi, and Inner Mongolia. The nation has built wind and hydropower facilities, but the output of these renewables has been insufficient to meet recent demand.

Before Australia called in for an independent inquiry into the origins of coronavirus last year, it shipped around 68% of China’s coal imports. That plunged by almost 98% in the first eight months of this year, to just 3 MMT compared with 63 MMT in the same period last year as China imposed an unofficial embargo on Australian coal as part of their diplomatic standoff, refusing customs clearance. At the same time, imports from Indonesia increased by just 23 MMT, and from Russia by 7 MMT. The net result is that overall coal imports into China in the first eight months of 2021 were down by 7.8% year on year, Banchero Costa data shows. Its head of research Ralph Leszczynski believes the government may be forced into easing the ban on Australian coal soon, as that would allow more coal to be imported and ease some pressure on domestic coal prices.

Depleted coal stocks have raised prices to a 10-year high with stem coal prices at around $190 per tonne, compared with $90 a tonne about a year ago. Mr. Leszczynski said this is creating a significant headache for Chinese power plants. “Their problem is that they need to buy coal at market prices but can only sell electricity at prices capped by the government. Therefore, power plants have little incentive to significantly boost electricity generation, unless the government agrees to increase electricity prices for users, or something is done to lower coal prices.” However, the state economic planning agency said yesterday that it will let power prices reasonably reflect changes in demand, supply and costs.

If lifting the ban on Australian coal shipments is a step too far for the Chinese leadership, there are other but limited options, said Ocean Analytics founder Ulf Bergman. “For shipping, the preferred option would be increasing purchases from the more distant shores, increasing the ton-mile demand.” But beyond the US, it may not be achievable in the short term because of the pandemic. “Hence, it leaves the Australian alternative,” Mr Bergman agrees. “Any lifting of the ban, either temporary or permanent, would benefit the capesize segment, which accounted for approximately two thirds of the shipments from Australia.” Since the introduction of the ban, panamaxes have become increasingly dominant in the Chinese coal trade.