In April did not only the second largest economy in the world buying more coal from Russia than ever before, it also eliminated import tariffs on all types of coal, a move that analysts say will mainly benefit Russian suppliers.
According to trade data from Refinitiv, Chinese coal imports from Russia nearly doubled to 4.42 million tons between March and April. Russia has overtaken Australia as China’s second largest supplier since last year and now accounts for 19% of its coal imports, up from the 14% share it had in March.
The flourishing coal trade stimulates both sides. Despite bold commitments to tackling the climate crisisChina is now focused on getting its economy out of a slump and needs coal to fuel power plants and make steel for infrastructure projects. Russia urgently needs new customers for its fossil fuels as they are shunned by the West.
China, the world’s largest buyer of coal, pledged to become carbon neutral by 2060 by 2020. But after severe power shortages affect millions of households and businesses at the end of last year it increased its consumption of coal.
Coal imports increased by 64% in 2021, and domestic production reached a record 4.13 billion tons. This year, those numbers are expected to be even higher as President Xi Jinping prioritizes infrastructure investment to revive the economy.
Last month, China imported a record 1.09 million tons of coking coal by sea from Russia, up 10% from last April, according to Matthew Boyle, chief dry bulk analyst at data company Kpler. Coking coal is used to make steel.
Coal trade between China and Russia dwindled shortly after Moscow invaded Ukraine in February and western countries began hitting Russia with unprecedented sanctions. Chinese banks were initially reluctant to provide financing for purchases of Russian commodities Reuters.
“After Russia launched the attack, Chinese and many other buyers initially scaled back their purchases to assess the risk of secondary sanctions,” said Lauri Myllyvirta, chief analyst at Center for Research on Energy and Clean Air, a Helsinki-based think tank.
By March, that reluctance had disappeared.
“When it became clear that the EU was not quick to act to ban imports, effectively preventing both the US and the EU from imposing broader sanctions that would hit other buyers, there was a jump in purchases due to latent demand, Myllyvirta said.
Since then, the European Union has approved a ban on Russian coal, which will come into full effect from August. Earlier this month, it also proposed banning all Russian oil imports within six months.
China now not only buys a lot of Russian coal, it also buys it at a big discount.
Russia is the world’s third largest exporter of coal, and global prices of the raw material have risen since it invaded Ukraine. The price of ICE Newcastle’s coal futures are up more than 40% since early March.
“In recent months, sanctions have caused a sharp split in the global sea coal market as many importers are now unable or unwilling to import coal from Russia,” said Toby Hassall, chief analyst for Coal Market Research at London Stock Exchange Group.
As the number of buyers shrinks, the importers who can and want to buy coal from Russia are paying “much lower prices for this supply compared to coal from other sources,” Hassall said.
According to Chinese data provider MySteel, the price in April was 2,710 yuan ($403) per tonne for the delivery of high-quality Russian coking coal to the port of Jingtang in northern China. That compares to $475 for US coking coal reaching the port and $423 for coal mined in China.
The price discounts have continued this month.
At the end of last week, Russian coking coal in the ports of northern China averaged about $439 per tonne, according to Hangzhou-based data provider Hithink Flush Information. Australian coal cost $512 and Chinese coal $496.
For Beijing, buying more from Russia is not only a friendly gesture to Moscow, but also a smart move that benefits China’s own economic needs.
“So far, the government seems walk a line from maintaining friendly relations with Russia without encouraging or directing Chinese companies to do more business with the country, and discouraging anything that could violate sanctions imposed on China,” Myllyvirta said.
“This line does mean that China’s imports from Russia will likely only grow on a market basis as other buyers embargo on Russian fossil fuels,” he said.
In spite of the promises to reduce its dependence on fossil fuels, China still needs coal to power its economy. As much as 60% of China’s electricity production in 2021 was generated from thermal coal, while more than 90% of China’s steel was produced in blast furnaces that burn coking coal. According to the National Bureau of Statistics, coal accounted for 56% of China’s total energy consumption last year.
“The Chinese government is currently pushing for all kinds of infrastructure and construction projects, including projects in the coal industry, to offset the effect of the real estate crisis and Covid lockdowns on other parts of the economy,” Myllyvirta said.
Prime Minister Li Keqiang said on Thursday that a steady supply of power is critical to China’s growth goals.
China will “resolutely” prevent another power outage this year, Li said during a visit to a power transmission center in China’s Yunnan province.
The National Energy Administration has set a target of 4.4 billion tons for China’s mines this year, 300 million more than last year’s record production.
And in another attempt To ensure supplies, the government has cut all import tariffs on coal to zero between May 1 this year and March 30, 2023. Previously, rates ranged from 3% to 6%, depending on the type of coal.
Indonesia, the current number 1 supplier to China, has enjoyed zero tariffs for years thanks to a free trade agreement between China and ASEAN countries. But Russia was still subject to tariffs until this month.
“We estimate an increase of 30% [Russia’s] export volume to China to 71 million tons this year versus 55 million tons in 2021,” Morgan Stanley analysts said in a research note last month.
A new bridge between China and Russia could help. The first railway bridge linking the two countries was completed last month. The 2,215 meters long According to Chinese state media, the bridge will mainly be used to transport coal, iron ore and other goods from Russia to China.
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