(The opinions expressed here are those of the author, a columnist for Reuters)

LAUNCESTON, Australia - China's imports of thermal coal are expected to have ticked higher in August as seaborne prices for the power-generation fuel remain competitive amid constrained domestic supplies.

A total of 28.95 million metric tons of thermal coal are expected to arrive at Chinese port this month, up from July's 28.8 million and the most since May, according to data compiled by commodity analysts Kpler.

China, the world's largest coal importer, producer and consumer, has boosted imports this year as demand for thermal power generation increased as hydropower struggled.

Since March, seaborne imports of thermal coal have exceeded 28 million metric tons every month, except for the 27.63 million from June, according to Kpler.

In 2022, seaborne imports of thermal coal only once breached the 24 million metric tons level, in November, and were below 20 million for eight of the 12 months.

The robust demand for imported coal comes as thermal power generation increases, with a record 600 billion kilowatt-hours (kWh) produced in July, up from 556 billion kWh in the same month in 2022.

At the same time hydropower generation slipped to 121 billion kWh in July, down from 146 billion kWh in the same month last year.

In addition to increased demand for coal-fired generation, China's domestic production of the fuel is struggling, with daily output dropping to a nine-month low of 12.18 million metric tons in July.

China's July coal production was 377.54 million metric tons, which was down 6.3% from June, with the lower output coming as China increases mine safety inspections.

China's domestic thermal coal prices have been edging higher in response to the lower production, with SteelHome assessing the benchmark price at the port of Qinhuangdao at 835 yuan ($114.54) a metric ton on Aug. 28.

This is up 8.4% from the low so far in 2023 of 770 yuan a metric ton, reached on June 5.

In contrast, the main grades of thermal seaborne coal that China buys have seen prices decline in recent months, as demand outside of China in other major importers such India eases.

 

AUSTRALIAN IMPORTS

China has returned to buying Australian thermal coal after Beijing ended its unofficial ban on such imports, imposed in mid-2020 amid a political dispute with Canberra.

Chinese utilities favour lower energy Australian coal, and the price for 5,500 kilocalorie per kg (kcal/kg) cargoes at Australia's Newcastle Port, as assessed by commodity price reporting agency Argus, dropped to $84.35 a metric ton in the week to Aug. 25.

This was down from $85.19 a metric ton in the prior week, and also 38% below the peak so far this year of $135.29, reached in late January.

China's imports of Australian thermal coal are estimated at 4.89 million metric tons in August, down from a three-year high of 5.41 million.

Imports of thermal coal from Australia have been above 4.8 million metric tons since April, according to Kpler, reaching the levels that prevailed prior to the 2020 ban, when Australia was China's second-biggest supplier behind Indonesia.

China's imports from Indonesia rose in August, with arrivals of 18.81 million metric tons forecast by Kpler, which would be the highest since May.

China's utilities typically buy lower-energy Indonesian coal and it is used widely for blending with domestic supplies as it is also low in ash and sulphur.

Indonesia coal with an energy content of 4,200 kcal/kg ended last week at $50.38 per metric ton, the lowest price this year and down 42% from its peak of $87.55, reached in the first week of the year.

The current overall market dynamics appear supportive of China continuing to import thermal coal at elevated levels, given the constrained domestic output, strong demand for coal-fired power, and the price advantage of seaborne cargoes, even when import duties are applied.

The opinions expressed here are those of the author, a columnist for Reuters.

(Editing by Stephen Coates)