By Jenny Ma, Jessie Li and Isaac Eio

November 24, 2020 - Chinese utilities have been allocated up to 20 million mt of import quotas for seaborne thermal coal for the remainder of 2020 by Chinese authorities, in order to meet near-term demand amid a shortage of Chinese domestic coal, sources said Nov. 24.

The move came on the heels after China allocated up to 3 million mt import quotas to Jiangsu end-users on Nov. 19 and an uptick in inquiries for Indonesian thermal coal along the Yangtze river in eastern from two state-owned utilities Nov. 18, sources said.

Utilities in Zhejiang, Jiangxi and Anhui in eastern China were allocated with a total of 4 million mt of import quotas, sources said.

"While the local customs did not openly talk about allocating import quotas, several state-owned utilities in Zhejiang, Jiangxi and Anhui started inquiring for coal arriving this year," a source close to the matters said.

Utilities in Guangxi in southern China were allocated 1.5 million mt of import quotas as a Guangxi local utility seek seaborne coal in an open tender, sources said.

After Guangdong utilities lobbying for 28 million mt import quotas, about 3 million mt were allocated in order to speed up the custom clearance for coal waiting at ports, a local trader said.

Chinese utility Guangdong Energy Group Co., Ltd. has been seeking up to 205,000 mt of seaborne coal arriving in the near term, according to a tender document.

The remaining 8.5 million mt import quotas will be distributed to other provinces in near-term, sources said.

Thermal Market Conditions

Most buyers in China rushed to buy near-term non-Australian coal in order to exhaust the import quotas as only cargoes arriving before December will be utilizing this year's quotas, sources said.

"Indonesian coal and Russian coal could likely gain from the recent allocation of quotas," an east China-based trader said.

Availabilities for near-term seaborne coal turned tight with the surge in inquiries from China, sources said.

However, Chinese domestic coal prices remained at its historical high this year as supply shortages for this grade could take time to be resolved, sources said.

Coking Coal

Meanwhile, in the metallurgical coal market, market sources said that the additional quotas released for non-Australian coals might be applicable to coking coal imports as well. However, market expected to see limited impact of this update as there were almost no availability of spot coking coal tonnages that could arrive before the end of December, sources said.

Availability of November and early December loading cargoes diminished as Chinese buyers compete for nearby shipment and secured non-Australian coals amid the recent restriction on Australian coals. Most of the offers standing in the market for premium coking coal and other weak grades of coals from US, Russia and Canada are for end December or January loading cargoes, sources said.

"The voyage from US or Canada to China varies from 22 to 35 days, or even longer. And those end December or few mid December loading cargoes definitely cannot not meet the arrival deadline, which is end December 2020," a buy side source said. Adding that the unavailability of desired laycan cargoes is the major factor that kept buyers on the fence despite the reported relaxations on import quota.

Shipping

In Dry Bulk Shipping, the extended lull was finally broken as freight rates race upwards from the increased coal shipments from east Kalimantan to China, sources said.

"Due to strong demand for coal, the time charter market for vessels from end November to the beginning of December was highly sought after,"a ship operator said.

A second ship-operator source said "the Pacific is hot this week, [Supramax freight] numbers are 15% higher than last week."

Availability of Supramax vessels were limited as ships located as far as Changjiangkou, in eastern China were being fixed for this voyage, he added.