SteelOrbis Shanghai
Chinese government reduced the import tariffs of coal to 0 percent. In addition to that, the strong domestic demand has led China to become a net coal importer for the first time ever.
According to China's customs statistics, in Q1 China's coal imports increased 60 percent to 14.3 million tons while its coal exports dropped 32 percent to 11.39 million tons, thus giving net coal imports of 2.91 million tons. This is the first time that China has recorded net imports of coal.
The primary sources of coal imports are Indonesia and Vietnam. In Q1 2007 China imported 5.97 million tons of coal from Vietnam, up 40 percent from last year. Meanwhile, coal imports from Indonesia in the same period rose 4.4-fold to 4.89 million tons. These two countries together supply 76 percent of China's total coal imports, up 18 percentage points compared with last year.
Data from the National Bureau of Statistics show that in Q1 China's primary coal output grew 15 percent to 494.93 million tons. This growth is one percent higher compared to the growth recorded in Q1 2006.
Based on the domestic production and import/export data, China had 497.84 million tons of available coal supply in Q1, up 17 percent compared with the same period last year.
The surge in coal imports and new resources is mainly due to the booming domestic demand. The reasons of the boom are as follows:
Firstly, in Q1 Chinese GDP growth was 11.1 percent, 0.9 of a percentage point above the growth of one year earlier. China relies on coal as its major energy source. In Q1 China's firepower electricity rose 17 percent to 619.5 billion kw/h. This electricity increase is equal to the newly added coal resources and accounts for 88 percent of total electricity. That is an indication of the reliance of China's energy and power industry on coal.
Secondly, China's adjustment of its coal import and export tariffs speeded up the rate at which it became a net coal importer. Since last November, on top of abolishing the coal export tax rebate, China has also lowered the coal import tariff rate from 3-6 percent to 0-1 percent, and imposed a tariff rate of five percent on coking coal exports. Thus an easy-entry and hard-exit system has come into place.
Research shows that imported coal has enjoyed evident price advantages since China adjusted its import and export tariffs. In March, for example, the average ex-works price of anthracite in seven Chinese cities reached RMB 361/ton ($47/ton), including tax, while the average price of Vietnamese anthracite is RMB 322/ton ($42/ton) in the Chinese market, again including tax.
Thirdly, with the structural imbalance in China between demand and production, coastal regions are pushing for large quantities of imports. While large coal mines are located in Shanxi, Inner Mongolia and other inland areas far away from the coast line, the railway constitutes a bottleneck for coal transport. It is difficult to transport coal to the developed coastal regions within the required time and at low cost.
Because the Chinese government has strengthened environmental protection and safety standards at coal mines, the cost of coal has been pushed up further with a consequent negative effect on exports. It is said that China's insistence on raising its coal price and the opposition to this on the part of Japan have caused the Sino-Japanese coal contract talks to end in deadlock. The price of Datong Mine coal offered by China is $74.5/ton FOB, rising to $21.53/ton compared with last year.
It is predicted that this is just the beginning of a new trend. After becoming the largest iron ore buyer, China now appears as a candidate to become an important buyer of coal.