China's Q4 met coal demand to outstrip supply by 1 mil mt/month: sources

China's move to restrain excess metallurgical coal production since March has squeezed supply in the markets, with demand seen considerably outstripping supply in the fourth quarter of 2021, sources said Oct. 25.

China's Q4 met coal demand is expected to be at 46 million mt/month, with 1 million mt/month deficit, Baosteel's research arm Hwabao Securities said.

The research firm sees China's Q4 met coal imports at 4 million mt/month, with domestic met coal output at 41 million mt/month.

Supply squeeze

China's move to restrain met coal production has cut domestic supply over January-August by 3.63% on the year, to 352.38 million mt, according to Hwabao.

Other than controlling excess production, factors like tighter environmental controls and license requirement to sell coal has slowed down China's overall met coal output, according to Hwabao.

From the second half of June, safety checks have resulted in output cut or suspension of various Chinese coal mines, shrinking coal supply, it said.

China's National Development and Reform Commission is now probing into cases of some coal mines that aided in influencing prices.

On Oct. 21, NDRC found some coal mines claimed that they halted operations and sales, which pushed up prices. The commission said after investigation by the Yulin city and relevant departments, it was found data from the related coal mines was misrepresented.

China Coal Transportation and Distribution recently said it would be challenging for China to hike met coal supply in the near term as demand is also rising globally and overseas supply remains tight.

Based on estimated China's crude steel output of 261.04 million mt in Q4, and the need for molten iron, demand for met coal is still there, according to Hwabao.

Since November 2020, China's demand for met coal has exceeded market supply for 10 consecutive months, with shortages as huge as 4.56 million mt and 3.14 million mt in February and July, respectively, while cumulative deficit from November 2020 through August 2021 was seen at 19.76 million mt, the Baosteel arm said.

China's downstream coking and steel sectors would be negatively hit by the output cap amid the country's dual energy and emission control policies, limited met coal output capacity rise and lower imports, with all these factors supporting coal prices in the Q4, according to Shenzhen-based Changjiang Securities.

Eyeing other origins

China has not bought coal from Australia in 2021 due to the trade dispute between the two countries, implying a loss of 35 million mt coal imports by China this year, according to Guosheng Securities.

To ease tight domestic met coal supply after halting Australian coking coal imports since December 2020, China has raised its imports from elsewhere other than Australia.

In January-August, met coal imports from Russia were up 75% on the year, to 6.9 million mt, while Indonesian shipments more than tripled during the same period, reaching 1.54 million mt, according to Hwabao.

January-August coal imports from Canada and the US were also sharply higher over the year.

Mongolia, another key coal supplier to China, is seeing a considerable uptick in daily average of coal truck volume, with 450 trucks hauling coal into China in the week to Oct. 15, up from 100 trucks in the previous week, according to Beijing-based Founder CIFCO.

However, overall Mongolian truck volume to China in 2021 still remains comparatively lower from the previous year.

The recent coal truck volume is much lower than the historical high of 2,233 trucks/day back in late August 2020, according to industry sources.