Chinese Coal Imports Remain in the Foreground
Wednesday, June 19, 2013

There was marginal improvement in the dry bulk market as improvement in demand for larger vessel segments was countered by a decline in demand for the smaller ones. According to the latest Dry Bulk Insight, the Drewry Hire Index remained at 217 points.

The Chinese coal market remained in the news, with the policy of China’s National Energy Administration still unclear as regards a potential ban on low-quality coal imports. There have been several protests from big power companies against the proposal, following which the minimum limit on imports could be reduced from 4,500 Kcal/kg to 3,750 Kcal/kg. This ban will have a direct impact on Indonesia, which supplies almost 50-70 million tonnes of lower-calorific-value coal to China.

However, Australia and South Africa are likely to benefit as they supply higher-grade coal. To a certain extent, this ban will support the dry bulk market by generating more tonne-miles (if China imports from Australia and South Africa), but this depends on China maintaining a certain level of imports rather than turning to domestic supplies.

Domestically, the ban will increase production costs for power plants as they will be required to bring about changes in their machinery (such as boilers) to use different grades of coal.

Looking ahead, with better weather projections and expected higher yields of crops, the smaller vessel segments are likely to enjoy better returns. Grain trade has already improved in the past month and will continue to do so. Meanwhile for the larger vessel segments, a lot depends on the demand scenario.


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