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China’s Coal Imports Fall on Quality Inspections and Lower Demand

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Apr. 1 2015, Published 11:00 a.m. ET

Importance of coal imports

China is the world’s top coal consumer, and its coal trade accounts for almost a quarter of the global total. In 2014, China coal imports dipped year-over-year for the first time in six years. Imports fell 10.9% to 291.6 million tons. More than 90% of the country’s coal imports are seaborne.

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Coal imports slump

According to data from the General Administration of Customs, China coal imports dropped in February 2015 to 15.26 million metric tons, down 9.1% over January 2015 levels. Compared to the same month a year ago, total coal imports were down 33% as a result of quality inspections at Chinese ports.

“The week-long Lunar New Year holiday have limited the rise in imports,” said Wang Xufeng, an analyst at Shanxi Fenwei Energy Consulting Company.

As of January 1, 2015, mandatory new quality inspections are in effect to reduce the inflow of low-grade coal and support struggling domestic miners. Because of ambiguity in the new policy, traders cut their cargo numbers, driving demand down further.

According to a report by Reuters, traders say “Chinese ports have been ordered to inspect all cargoes before they are passed on to buyers, a process that normally takes around 7-15 days”.

Going forward

In the first two months of 2015, China’s coal imports stood at 32.04 million tons, down 45.3% from the same period a year ago. Going forward, China is urging local authorities and coal enterprises to limit output to support the loss-suffering sector. It’s also trying to cut supplies by closing small mines and curbing low-grade coal imports.

Dry bulk shippers such as DryShips (DRYS), Diana Shipping (DSX), Navios Maritime Holdings (NM), and Safe Bulkers (SB) will be negatively impacted by falling coal imports. The SPDR S&P Metals and Mining ETF (XME), which invests in industries such as steel, coal and consumable fuels, gold, precious metals and minerals, aluminum, and diversified metals and mining may also be negatively affected.

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