According to data from the General Administration of Customs, Chinese coal imports climbed to new heights again in September, reaching 47.6 mln mt, a y-o-y increase of 12.9%. This surpasses the record 47.3 mln mt set in December 2023. With the release of September's figures, it now appears certain that Chinese annual coal imports will exceed 500 mln mt for the first time. To reach this figure, China only needs to maintain an average monthly import volume of 37.0 mln mt in 4Q24, well below the average monthly import volume of 43.2 mln mt for the first nine months of the year. Achieving this historical milestone is expected to be manageable.
Representing 78.2% (or 37.2 mln mt) of the September coal import, thermal coal is clearly the main driver behind the import surge and we will analyse the major downstream sectors: thermal power generation (representing 60.5% of the total thermal coal consumption) and the non-electric sector (construction 24.0%, coal chemistry 8.2%), to better understand the drivers of the record imports as well as shed light on the future of China's coal market and import demand.
Power Generation Market
In September, China’s total electricity consumption reached 847.5 bln kWh, up 8.5% y-o-y. Consumption in the primary industry was 12.1 bln kWh, up 6.4%; the secondary industry consumed 537.9 bln kWh, up 3.6%; the tertiary industry used 165.2 bln kWh, up 12.7%; and residential consumption rose 27.8% to 132.3 bln kWh. Therefore, although the secondary industry accounts for 63.5% of total electricity consumption, the net growth is driven by residential electricity usage and the tertiary industry. This reflected prolonged hot weather in September, driving a significant increase in residential electricity demand for space cooling. Against this backdrop, demand for coal from power plants, particularly coastal power plants, was well supported, showing "off-season resilience". The average daily coal consumption at the Six Major Power Groups in September reached 909,000 mt/day, significantly higher than the 791,000 (for YR2023) and 851,000 (for YR2022) mt/day seen in the past two years.
With the recent drop in temperatures, the need for stockpiling eclipsed the appetite for coal import demand. Coal inventories at the Six Major Power Groups increased by 13.0%, from a September low of 13.19 mln mt to 14.90 mln mt on Oct 24. This was the highest for this time of year since 2020.
However, whether this demand boost could last remains uncertain. It is tentatively suggested that the current restocking might be front-loading winter coal demand. Combined with expectations of a "mild winter," this year's winter stockpiling demand could be limited.
Non-Electric Market
Over the past two months, market optimism about coal demand from outside the power generation sector, which was fueled by positive macroeconomic signals, has not been fully realised. Despite the resumption of cement production, which is capped in summer, the increase in operating rates has been modest. Similarly, there has been no significant rise in coal demand from the coal chemistry sector.
Latest data from the National Bureau of Statistics shows that the Real Estate Development Climate Index stood at 92.41 in September. With the value below 95, it remains in the "low prosperity level" range despite the index rising for five consecutive months. In the first three quarters of 2024, national real estate development investment fell by 10.1% y-o-y, and the construction area of real estate development companies dropped by 12.2% y-o-y. Additionally, due to local debt and funding constraints, there have been fewer new infrastructure projects (highways, high-speed rail, subways, water conservancy, etc.) since September, with some regions reporting no new projects.
Looking ahead, as the winter approaches, the cement industry should again be capped to secure coal demand in power generation sector, and combined with low industry sentiment, overcapacity, and fierce competition, it would result in weak support for the thermal coal market.
Considering the lag effect between the recovery of the real estate sector and the subsequent revival in demand for cement and coal, we expect the subdued demand for coal and cement from the real estate sector to persist. In the latest China Real Estate Outlook 2025 released by Goldman Sachs, the bank projects that China's real estate market will bottom-out and stabilize in late 2025 as policy support strengthens. This marks a significant shift from their previous stance, where they had forecast that "by 2027, China's housing prices would halve by another 40% from current levels."
In the coal chemistry sector, although methanol is seen as a key future fuel substitute under the ESG scheme, there has been no significant increase in methanol demand so far. Coal demand in the coal chemical industry has remained stable. It is noteworthy that methanol production capacity has increased this year, against the backdrop of substantial investment due to higher profits. However, due to the slower than expected rise in methanol demand, it has quickly led to oversupply and sharp profit declines, thus further restricting output from some methanol producers and limiting coal demand in the coal chemical market.
Over the past two years, China has played an increasingly important role in the seaborne coal market, with both its absolute import volume and share of global imports. In contrast, coal imports by other countries have shown a visible decline. According to AXSMarine data, global coal imports to other countries totalled 705 mln mt in the first three quarters of this year, marking a third consecutive year of decline, compared to 715 mln mt and 766 mln mt during the same periods of 2023 and 2022, respectively.
To a certain extent, China’s substantial coal imports have mitigated the loss from other areas and supported freight rates. However, while there is optimism surrounding the continued implementation of supportive macroeconomic policies in China, it’s essential to remain cautious about potential future declines in China’s coal imports. Even if imports remain higher than the 2017–2022 levels, any reduction could have a more pronounced impact on the seaborne market. Russia, which is most sensitive to price changes, will serve as a good benchmark. According to statistics from AXSMarine, Russia's coal exports in the first three quarters of this year decreased by 24.6 mln mt y-o-y. By vessel type, the most affected vessel type is Capesize, with a volume drop of 34.3%. The declines for Panamax and Supramax are relatively moderate, at 11.9% and 12.1%, respectively.
