Since the first energy crunch a year ago, China has seriously ramped up domestic coal production in an effort to avoid excessive quantities of more expensive imported energy and even before the Russian-Ukrainian conflict, in an unprecedented move, domestic coal mines maintained full production schedules throughout the Chinese New Year holiday period last February. Consequently, domestic coal production may increase by as much as 400 MMT in 2022 to around 4.5 BMT. Additional coal production has also impacted Chinese coastal coal movement which we forecast to rise to around 870 MMT (+ c30 MMT YOY) which is now carried by as many as 2,300 Chinese flag vessels ranging from Handysize up to Post Panamax.

The increase in coastal coal movement almost mirrors the decline in International coal imports this year,182 MMT by the end of Q3 compared to 213 MMT at the same point last year. Imports from Indonesia have seen the sharpest decline standing at 115 MMT by the end of Q3 compared to the full year 196 MMT in 2021. On the other hand imports of cheaper short haul Russian Pacific coal have increased to 47.5 MMT and look set to better last year’s total of 57 MMT. Elsewhere, China continues to import high quality metcoal from USA though at just 4 MMT to date it is about half of what has imported by this time last year and given that almost all these quantities are shipped on Capesize and Panamax tonnage from the US east coast, this reduction in volume has been a serious hit for tonne-mile demand. Canada at around 9-10 MMT looks set to be a distant third provider of coal to China behind Indonesia and Russia with all their shipments sourced from west coast Canadian ports. China has largely exited importing coal from Colombia (4 MMT in 2021 but just 0.2 MMT to date) and South Africa (7 MMT in 2021 declining to 1 MMT so far this year) whilst imports of coal from Philippines at 3.6 MMT are just over half of what they were last year.

Both the fall in Chinese import volumes and evolving trade patterns have been one of the key determinants negatively impacting Pacific markets in particular this year and though some of the shortfall in Indonesian coal has moved instead to India this has not exactly boosted tonne-mile demand. Whilst coal prices remain north of $200 we do not envisage a change in the present Chinese government policy of prioritizing domestic coal production above imports.