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Chinese coal still sets price tone for seaborne cargoes: Macquarie

China's domestic coal sector continues to have a heavy bearing on prices of seaborne cargoes, even as the country's imports continue to dwindle, analysts at Australian investment bank Macquarie said in a research note Friday.

"Chinese coal imports have collapsed this year due to government protectionism and as a result China is no longer the largest buyer of coal in the global seaborne market," the analysts said.

China has introduced several measures to boost its ailing domestic coal sector since the third quarter of last year, putting pressure on international coal prices.

The country's thermal coal imports over January-July have plunged 42.3% year on year to 49.47 million mt, following these measures which include restrictions on trace elements for imported cargoes as well as a 6% import duty on bituminous material.

The 6% import duty is not applicable to Indonesian cargoes as part of a free trade agreement.

Prices of higher-ash Newcastle 5,500 kcal/kg net as received coal, which is very popular among Chinese buyers, has slumped nearly 20% so far this year to $42.20/mt Thursday, Platts data showed.

Despite the significant reduction in imports, volumes to China -- of nearly 180 million mt/year -- still make up about 15% of the global seaborne thermal and coking coal markets, the analysts noted.

"We would suggest that while a significant volume of coal is still clearing through China, the Chinese domestic market will continue to play a price setting role," they said. "We think it will continue to do so until it ceases to act as a clearing house for surplus tonnes."

On Thursday, the price of the recently launched Platts PCC 1 FOB Qinhuangdao 5,500 kcal/kg NAR coal was assessed at Yuan 386/mt, including 17% value added tax, while that for PCC 8 CFR South China 5,500 kcal/kg NAR, including 6% import duty and 17% VAT, was calculated at Yuan 387.74/mt, Platts data showed.

The analysts however, said that further increases in "protectionism are likely to be the path of least resistance" for the Chinese government trying to restructure its heavily indebted and cash-flow negative domestic coal industry.

The restrictions on Chinese imports have now put the onus on major coal exporter Indonesia to adjust its supply, the analysts noted.

"Surplus seaborne tonnes that have been displaced from the Chinese market and cannot find an alternative ex-China buyer must be cut," the analysts said.

Major Indonesian suppliers such as Adaro, Bumi Resources and Harum have reported lower year-on-year production in the first half of 2015, but market participants surveyed by Platts do not expect these cuts to result in any significant boost to coal prices in the near term.

source: http://www.platts.com