Posted on 05 May 2022
News that China has decided to temporarily suspend coal import tariffs from May 1 to ensure energy security is having little supply-side impact on the market, according to Chinese industry sources on Friday.
On Thursday, China's Ministry of Finance announced that imports of all types of coal products – ranging from anthracite to coking coal – that are normally subject to tariff rates of between 3%-6% will be temporarily excluded from duties. Foreign coal will be able to enter China duty-free from May 1 2022 until March 31 2023, as reported.
The latest move is in line with the central government's pledge to make determined efforts to safeguard energy security and maintain stable supplies of coal, a Shanghai-based market analyst explained. "The temporary zero-tariff period contains two peak coal-consuming periods in China, namely summer – when power demand for cooling soars – and during the 'heating' season in winter," he noted.
Moreover, the tax cut on coal is also in response to the jump in global commodity prices after the Russia-Ukraine conflict erupted and to further stabilize domestic coal prices, Mysteel Global noted.
Last week, prior to the import tax cut announcement, China's Premier Li Keqiang said at a State Council executive meeting that China plans to increase coal production capacity by 300 million tonnes this year to protect energy supplies. The government wanted to avoid a repeat of last year's power crunch and to take the heat out of high coal prices and bring them down to within a reasonable range, sources note.
On April 25 just prior to the announcement, Mysteel's composite price for domestic coking coal had rallied to Yuan 2,835.7/tonne ($429.6) including the 13% VAT – a new high since last November 17 – before easing slightly to reach Yuan 2,817.2/t by April 27.
However, some market watchers suggest that for the time being, scrapping coal import tariffs will only be of limited use in increasing coal availability.
"For now, China's coal imports are mainly from Indonesia, Russia, Mongolia and the U.S," the market analyst observed. "But well in advance of the May 1 removal, import tariffs on Indonesia coal entering China have been zero anyway. And regarding the import volumes from Mongolia and the U.S, the prevailing pandemic situation – as well as the relatively high global coal prices and limited availability – will see volumes from these two countries being limited too," he said.
For now, the most likely source of increased coal shipments to China will be Russia, he predicted. However, imports from Russia are hampered by the ongoing Russia-Ukraine conflict and contract settlement issues – two factors that will limit any increment in tonnage from there, he added.
A coal trader in North China's Shanxi held the same view. "Tariff levels on foreign coal have never been a big problem for China's coal imports. The volume of coal that China imports is mainly determined by price and availability, not the size of the import duty," he argued.
"After cutting the tariff, our cost of importing (US dollar-denominated) Russian K10 coal, for example, will decrease by around Yuan 70/t. However, the decline in cost will be offset by the recent devaluation of the Chinese Yuan," he explained.
Over this year's January-March period, China's coal and lignite imports slumped by 24.2% on year to 51.8 million tonnes, according to data from the General Administration of Customs.
Source:Mysteel Global
