China hikes CY20 thermal coal import quota, but no cheer for Australia: Sources

China is one of the world's leading coal consumers and a major buyer of Australian coal too. In 2019, China's 57% of thermal coal imports came from Australia.

However, 2020 has proved to be quite a difficult year amid pandemic-led reduced energy requirement denting demand for Australian coal and on top of thatChina imposed restrictions on Australian coal imports due to rising political tensions between the two.

While Beijing has not officially admitted to banning Australian thermal coal imports, it recently stepped up its inspection efforts to accelerate the energy transformation. During these inspections it was found out that majority Australian coal do not meet the environmental protection standards resulting which it had to slow down the customs clearance of Australian coal.

Subsequently, Australian coal vessels lined up near the Chinese ports also adversely impacting its prices. The number of Australian coal vessels queuing up for entry at Chinese ports has increased to more than 80, with the value of coal worth more than 1.1 billion Australian dollars (about RMB 5.3 billion).

China rarely makes modifications to import quotas for the year, however this year is a bit different as a quota of 20 mn t has been recently released by the country to compensate for the deficit from Australian coal import restrictions. While, this is good news for country's key coal suppliers other than Australia, as market participants have pointed out that Australian coal will still be barred to enter the Chinese shores.

Indonesia, Russia and few other countries would seize the opportunity to meet China's 20 mn t new quota orders and would increase their exports to China. In fact, on 25 Nov'20, China and Indonesia signed a $1.46 billion agreement to supply 28.72 million tonnes of coal to China over the next three years.

In addition to Indonesia, Russian coal traders are also actively increasing coal exports to China. According to a Russian news agency on November 17, China imported 16.25 mn t of Russian coal in the first half of 2020, a year-on-year increase of 10%. Thus, it is expected that China's coal import channels are becoming wider and diverse, while Australia loses its market share in China.