China's Renewed Australian Coal Demand Reshapes Asian Trade Flows

China has ramped up coal imports this year after ending its unofficial ban on Australian coal. This is reshaping seaborne coal trade flows in Asia. Total Chinese coal imports jumped 88.6% in the first 7 months of 2022 versus 2021. Thermal coal imports hit 29 million metric tons in July. Imports from Australia rebounded after the ban ended, hitting 5.45 million tons in July after zero tons in December 2021. With more Australian coal going to China, Indonesia's exports to China dropped. China also boosted Russian coal imports above 4.4 million tons in recent months.

With China buying more from Australia and Russia, India cut back. Indian imports of Australian coal fell below 1 million tons per month since March, down from peaks above 1.7 million tons before the China ban ended. Indian imports of Russian coal also dropped 50% from peaks in 2022. Instead, India boosted Indonesian coal imports, which hit 63% of its thermal coal imports in July, up from 60% in June.

Despite shifting trade flows, Asian thermal coal prices remain steady, signalling a balanced market. The Australian 5,500 kcal/kg grade coal price has traded around $86 per ton since June, after plunging from highs above $280 last March. Indonesian 4,200 kcal/kg coal also held around $52 per ton since mid-June. The shifting demand between China and India reflects their preferences for coal grades - China favours Australian coal while India buys more Indonesian supplies.

Here are a few key takeaways for investors:

• Coal demand in Asia remains strong, with China and India importing record volumes in 2022. This suggests steady demand for major coal exporters like Australia and Indonesia.
• The easing of China-Australia tensions and lifting of the coal ban is positive for Australian coal producers and exporters, giving them back access to their largest market.
• However, coal prices have stabilized after sharp declines from last year's record highs. While demand is robust, prices reflect a more balanced market compared to 2021's supply squeeze.
• Coal's long-term prospects remain uncertain given the global energy transition away from fossil fuels. However near-term demand from Asia seems secure.
• For investors, Australian and Indonesian coal miners with low costs may offer stable cash flows at current prices. But risks remain around carbon transition, geopolitics, and China's unpredictable policy shifts.
• Overall coal supplies appear well-positioned to meet Asian demand in the near-term. But investors may want to be selective in assessing coal investment opportunities. Steady cash flows for efficient miners seem likely at current prices.

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