Surging Q4 LNG Demand in China may Hurt Seaborne Thermal Coal

Surging Q4 LNG Demand in China may Hurt Seaborne Thermal Coal

Surging Q4 LNG Demand in China may Hurt Seaborne Thermal Coal

Chinese demand for seaborne thermal coal appears to be in doldrums in the seasonally strong fourth quarter as the country strives to plan better to make supply of LNG smoother than last year.

China’s National Development and Reform Commission said earlier this week that supply and demand of natural gas would be in “tight balance” this year but assured it would be sufficient for residential use.

During a press conference, the NDRC spokesperson said the country has “ensured natural gas supply of 263.5 billion cubic meters this year, up 24.9 Bcm [or 11%] from last year, with some 100 newly opened gas storage projects expected to reach a storage capacity of 16 Bcm, 3.5 Bcm more than in 2017.”

In a bid to curb pollution, China last year rolled out an ambitious plan to ban the use of coal for heating in its “coal to natural gas conversion” project last winter.

However, LNG supplies fell short and the country had to revert to coal earlier than expected in 2018, after millions of people were reportedly left without proper heating due to a colder-than-expected winter.

“To prepare for this winter peak demand given continued ‘coal-to-gas’ switching, China lifted both LNG and pipeline gas imports,” Citi analysts said in a research note. “We expect China’s LNG imports to increase 15 Bcm in 2018 from a total of 52 Bcm in 2017,” the analysts noted.

With power plants sufficiently prepared, China-based thermal coal market sources said they do not expect a heating crisis this year.

As such, they added it is unlikely to see a strong surge in demand for thermal coal or a relaxation of the import restriction on the product.

Early this month, the NDRC had hinted that there would be no change in the import policy for thermal coal during a meeting with several major Chinese power plants. This was widely seen as a way for the Chinese government to encourage the use of domestic coal.

Seaborne thermal coal prices have slumped in the past few months as buyers refrained from fresh seaborne cargo purchasing amid the implementation of the quota system for imports at Chinese ports.

China’s September thermal coal imports fell 10% year on year and 20% month on month as domestic thermal power generation slowed.

The price of FOB Kalimantan 4,200 GAR, a popular grade bought by consumers across Asia, has slumped nearly 21% so far this year to be assessed at $37.50/mt by S&P Global Platts Thursday.

Citi analysts noted that as of September, LNG storage fields, with already limited capacity, might be nearly full due to more aggressive injections to avoid a repeat of last year’s winter gas supply shortage.

China’s year-to-date imports have already surpassed total LNG imports over last year, according to S&P Global Platts Analytics.

“We expect total Chinese LNG imports this year to surpass 50 million mt. This winter, we expect their total LNG imports to grow by more than 22% over last winter. Still strong growth, but not as strong growth as last winter,” said Jeff Moore, Asia LNG manager at Platts Analytics.

Market sources said industrial activity had slowed this year due to the ongoing US-China trade tensions, while the winter season was not forecast to be as cold as last year.

Chinese National Climate Center has forecast a milder winter in most parts of China this year.

“We don’t see any reason why the government will relax [thermal coal] import restrictions this year,” a China-based source said.

China has been on a war footing to control pollution in the past couple of years, shutting several small and inefficient mines.

Despite the increase in natural gas usage, thermal coal will be here to stay for at least the next three to five years, a China-based natural gas analyst said.

“China would not want to be totally reliant on [natural gas] imports, but domestic production and the infrastructure is not ready to replace imports. It’s not easy to close down all the coal mines too as too many people will be affected,” he said.

Despite measures by the Chinese government to keep domestic coal prices under leash, the price of FOB Qinhuangdao 5,500 kcal/kg NAR has shed only 7% so far this year to be assessed Thursday at Yuan 660/mt, Platts data showed.

Source : HSN


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