China has increased its import quota for thermal coal by 20 million tonnes to see it through until the end of the year, although Australian shipments of the commodity will not benefit as US$500 million worth of its coal exports remains stuck at Chinese ports amid a blistering row between the two countries. Instead Russia and Indonesia are likely to benefit from the increased quotas, according to commodities analyst S&P Global Platts.
Separately on Wednesday, Indonesia signed a three-year US$1.46 billion deal to sell more coal to China starting next year, as the world’s second largest economy charges ahead in trade with its key raw material partners.
The deal was signed by the Indonesian Coal Mining Association (APBI) and the China Coal Transportation and Distribution Association following a virtual meeting, though the agreement was organised through diplomatic channels, APBI said in a statement.
“This effort is a concrete step of the Indonesian and Chinese government in celebrating the 70 years of diplomatic relations between the two countries,” APBI said.
The deal paves the way for long-term coal supply from Indonesia and increased trade between the two countries, and will help Southeast Asia’s largest economy recover from the coronavirus pandemic, according to APBI.
Indonesia, Australia and Russia are the three biggest suppliers of seaborne thermal coal to China, while Australia and Mongolia dominate exports of coking coal, which is used in steel furnaces. Power stations use thermal coal as fuel.
In context, China’s lift in the quota of thermal coal to 20 million tonnes is small compared to its annual import of about 300 million tonnes of both coking and thermal coal.
According to S&P Global Platts, utilities in Zhejiang, Jiangxi and Anhui provinces were allocated a total of 4 million tonnes of the new quota, while 3 million tones will go to Jiangsu end users, following increased inquiries for Indonesian coal in the region. Power stations in Guangxi in southern China were also allocated 1.5 million tonnes. Other provinces await their allocations.
There might also be additional quotas for coking coal imports, although this might be pointless given little chance for a quick turnaround of coking coal shipments before the end of December, S&P Global Platts said.
The lift in quotas is likely to remain a short-term fix given China’s push to reduce pollution and use cleaner fuels as part of its 2060 carbon neutrality target. That target, alongside China’s keenness to seek energy security as part of its “dual circulation” economic model, could also mean it was less inclined to lift large quotas or its ban on Australian coal quickly, analysts said.
China’s Ministry of Ecology and Environment this week started consulting on a draft carbon emission allowance and allocation plan for the power generation sector.
“Domestic circulation isn’t just about encouraging demand. It also includes a strategic focus on strengthening self-sufficiency across the domestic economy. Energy and food security are critical to this,” Gavin Thompson, Asia-Pacific vice-chairman for energy at Wood Mackenzie, said in a note