China, the world’s biggest importer and consumer of coal, could reinstate import curbs and controls amid growing oversupply, Morgan Stanley analysts say.
While China is unlikely to resort to outright bans due to its obligations under the World Trade Organization (WTO) rules, the country could discourage imports by delaying imports or boosting inspections, Morgan Stanley said in a note carried by Bloomberg.
Last week, two of China’s biggest and most influential coal industry groups urged their members to curb imports of lower-quality coal and reduce production to cope with a growing oversupply.
China Coal Industry Association and China Coal Transportation and Distribution Association flagged weaker-than-expected coal demand growth and excess supply that has been hitting the profit margins of China’s domestic coal mining companies.
China’s largest coal miner and major importer China Shenhua Energy has already halted spot purchases of imported coal for deliveries starting in April, amid an oversupply of the fuel, traders told Reuters.
In 2024, Chinese imports of coal jumped by 14.4% from a year earlier to a record high of 542.7 million tons. Analysts attributed the rise in Chinese coal imports to falling international seaborne coal prices, which opened up the import arbitrage to China.
But as demand growth is falling short of expectations while supplies have been more than sufficient, China faces falling coal prices and eroded profitability of its coal mining companies.
Coal import controls in China, if implemented, would not be new. Such measures were taken in 2014, 2017, and 2018.
Since 2022, China has prioritized coal production and having enough coal supply to ensure its energy security, but the recent oversupply now appears to threaten the profits of its major coal mining companies.
Despite the weaker demand growth in recent months, coal remains the baseload of China’s power system to back up the surge in renewables and will stay such for years to come as power demand jumps with the increasing electrification of homes and transport.
By Tsvetana Paraskova for Oilprice.com
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