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Colombian thermal coal is set to become a “key player” in China’s market share over the course of 2024 as sellers try to diversify away from Europe due to scarcity of demand in the region, market sources said Jan. 31.
“The reason why buyers in China are looking at Colombian material is because they are moving away from low 3,000 (CV) material for coastal plants, and Russian material from eastern ports is behind on contracts due to railroads priority for western movements of liquid petroleum products,” A US-based trader said. “The Colombian material was sold in October 2023 for 2024 delivery, but was agreed against API 8 index. Glencore has agreed to sell . . . but not Drummond. The market for 5,500 (CV) material in the Pacific is tighter than the market thinks.”
Additionally, traders said that demand in the European market has reduced below “cost worthy” efforts to sell there anymore.
In 2023, China imported a total of 325.2 million mt of thermal coal, according to data from S&P Global Commodities at Sea. Out of the total, 215.3 million mt was supplied by Indonesia, 51.2 million mt by Australia, 46.1 million mt by Russia, 4.8 million mt by the Philippines and 3.9 million mt by Colombia.
A Singapore-based trader said that 10 million mt of Colombian coal has been booked to China so far in 2024.
“The primary reason is that Europe is well-stocked, and Colombia is trying to gain more market share in Asia,” the trader added.
Contrary to previous years, this year the Chinese demand failed to gain momentum before the start of the country’s Lunar New Year on Feb. 10 as much as the thermal coal market had anticipated. Market participants believe that not only robust domestic production but also subdued industrial activities, despite the country’s policymakers’ stimulus to boost the economy, kept spot imports limited.
According to S&P Global Commodity Insights, the cold snaps in China during the winter have not been solid drivers for purchasing demand in the seaborne market so far. Despite the seasonal increase of daily coal burn at coal plants, abundant stockpiles, owing to well-maintained domestic production levels, led to muted buying activities during the past few weeks. With the upcoming Lunar New Year, the long holiday season will kick off in two weeks or so, potentially constraining domestic supply and providing support to the market.
“However, China might buy Colombian high calorific value coal if they are getting it at a significant discount,” a Singapore-based trader dealing in the Chinese market said. This would be just like how Russia gained market share in China post European sanctions on coal imports from the country following the geo-political tension between Russia and Ukraine, the trader added.
Platts assessed the FOB Colombia 6,000 kcal/kg thermal coal weekly price at $79/mt Jan. 26, down $2.50/mt on the week. In contrast, the FOB Russia Pacific 6,300 kcal/kg thermal coal weekly price was assessed at $97/mt, flat on the week.
Additionally, on the freight side, cheaper rates on the Colombia-China route have put FOB prices under pressure to sell into China competitively.
“There is a chance that China will grab this opportunity to procure coal at a high discounted price. Besides, Colombian coal is of better quality than Australia,” the Singapore-based trader said.
The overall sluggish European demand has caused headwinds for Colombian producers, and it’s likely that now they will try to sell to the Asia market more, the trader further said.
On top of that, the recent import duty of 6% levied on several countries, with whom China does not share a free trade agreement, has made Russian coal comparatively more expensive.
“This, in turn, gives some room for Colombian imports to China,” a trader from Indonesia said. However, unless the Colombian producers are offering a notable price advantage, Australia is likely to be the Chinese buyers’ priority for high-CV coal due to its favorable geographic location, the trader added.