Seaborne Coal Volumes Slip in Asia, and It's Not Just the Pandemic

One of the quirks of Asia's seaborne coal market is that volumes have held up remarkably well, despite the fuel being demonized for its role in climate change and the rising number of countries and companies spurning it.

At least, that was the case for the past several years, but there are now signs that volumes are trending lower in the top consuming region.

The amount of coal discharged at Asian ports has now dropped for 12 consecutive months, when comparing each month to the same month a year earlier, according to Refinitiv vessel-tracking and port data.

The volume of all types of coal discharged in March was 73.98 million tonnes, down 10% from the 82.26 million in March 2020, the data showed.

This extended a pattern of month-on-month declines stretching back to April 2020, the last time volumes rose when compared to the same month a year earlier.

The data also shows this month is likely to continue the trend, with just 58.57 million tonnes discharged up until April 28, meaning that even when the last few days of the month are fully assessed, it's unlikely that April this year will exceed April 2020's 80.18 million.

There is an argument to be made that seaborne volumes in 2020 were affected by the coronavirus pandemic, which caused economic growth and power demand to slump across the region.

However, given that the pandemic only spread across much of Asia after the first quarter of last year, and was largely contained by the first quarter of this year, at least in China, comparing the two periods may exclude the peak of its impact.

Total seaborne coal discharged in Asia fell 6.5% year-on-year to 228.8 million tonnes in the first three months of 2021.

Among the region's top importers, China dropped from 71.39 million tonnes in the first quarter of 2020 to 59.86 million in the same period in 2021, while number two buyer India slipped from 53.77 million to 47.74 million.

Third-ranked buyer Japan was largely steady at 43.97 million tonnes in the first quarter, down slightly from 2020's 44.07 million, while number four importer South Korea was similar, with January-March imports of 26.83 million tonnes being just a touch below the 27.16 million from the same period in 2020.

Policies drive market?
The problem for coal exporting nations such as Indonesia and Australia is that the market is increasingly policy-driven, rather than one that relies on supply and demand fundamentals.

China plans to cut its coal use to below 56% of energy consumption in 2021, from 56.8% in 2020 and 68% at the start of the previous decade, according to a government document.

While the increase in the overall size of the energy market means coal consumption will likely rise in China, even as its market share drops, President Xi Jinping has committed the world's biggest miner, importer and consumer of the fuel to start phasing down consumption from 2026 onwards.

"We will strictly limit the increase in coal consumption over the 14th five-year plan period (2021-2025) and phase it down in the 15th five-year plan period (2026-2030)," Xi told the Leaders Summit on Climate convened by U.S. President Joe Biden on April 22.

While this commitment disappointed environmental activists hoping for stronger action, it suggests seaborne imports into China will struggle to grow and are likely to battle to hold onto existing volumes in coming years.

India, the world's second-biggest coal importer, has a policy of reducing imports in favor of expanded domestic output and a switch to increasing renewable energy in its power mix.

It's probably only state-controlled Coal India's inability to boost output, which fell for a second year in 2020, that's keeping imports in India's energy mix.

Japan just cancelled its last proposed new coal-fired power plant, leaving no new units planned other than those already under construction, which will largely replace older, less-efficient units being retired.

South Korea's government also plans to move away from coal-fired generation, and has stepped back from financing overseas coal projects, joining many Japanese groups that have committed to ending involvement in the polluting fuel.

While seaborne coal in Asia will continue for many years to come, it seems that the growth story is over, and the question now is how rapid the retreat will become.

(Editing by Sam Holmes)