Chinese Coal Demand Developments

Chinese coal imports have begun the year on a weaker note, slowing from the high level we saw last year. Total coal imports in 1Q25 were down 1%, compared to the 14% surge in the same period in 2024. The picture is even more negative for the seaborne market, with vessel tracking data showing an 11% drop, as the share of overland cargoes expand, primarily from Mongolia. There now appear to be some structural developments that could pressure import growth in the remainder of the year.

The combination of improved domestic production and a weaker global coal pricing environment has narrowed price differentials between the domestic and import markets, reducing arbitrage opportunities that had helped to support China’s import demand. China’s northern ports, which typically ship domestic coal to the country’s south, maintained a strong premium from mid-2023 and through last year. This corresponded with strong coal imports, as power producers benefitted from cheaper global coal. The spread has, however, narrowed since the start of this year.

One reason for this change has been the country’s coal production. After growth of 12% in 2022, domestic coal output growth slowed to 4% and 1% in 2023 and 2024, respectively. Although, Chinese domestic coal production fell in the first half of last year (-2% y-o-y to 2,266 Mt), it picked up in the second half (+5% to 2,480 Mt). Further pressuring imports into this year, January and February combined production grew 7% y-o-y. The return to historical levels of growth will both lower domestic prices and lessen import demand – as long as energy demand does not lift substantially, which, in the current global economic situation, appears unlikely.

We note that some downside risks still exist for domestic production. Production was weak in the first half of 2024 over safety concerns, an ever present issue in Chinese mining operations. Furthermore, the recent success of domestic production may be a double-edged sword, with lower prices leading higher-cost producers to reduce output. While lower demand is also a negative for the seaborne import market, the closure of mines does lead to potential for volatility in imports, paired with the need to plug the gap in Chinese energy production due to fluctuations in renewable energy output.

Stable and elevated port stockpiles do, however, add a buffer. McCloskey recently reported that end-users push for lower term-contract prices on domestic supplies, refusing to settle or pay for monthly contracts from non-state-owned miners. This has come as market weakness has brought the spot price below term contracts, contributing to a supply glut at railways and ports.

Additionally, since 1 March, the Indonesian government is requiring all coal sales to be priced using a government-set benchmark. McCloskey reports that this threatens existing contracts that are not linked, with some producers preparing for force majeure and potential defaults, potentially leading to more supply disruptions from China’s main supplier.

Despite the occasional gloomy headlines, growth in Chinese energy production has been steady over the past years at 4% in 2022, 6% in 2023 and 5% in 2024. While renewable energy is increasing its share, thermal power (of which coal represents over 90%) remains the dominant source with > 70% market share for the past decade, only dipping below that level to 68% in 2024. In the first two months of the year, energy production remained near flat, though non-thermal power production rose 11% year-on-year, with a strong lift in wind (+19%) and solar generation (+48%), absorbing a greater share at the expense of thermal power. Due to the reasons stated, short-term seaborne coal imports into China are expected to be weaker as the arbitrage window remains narrow while the domestic market is well supplied.

By Cara Hatton, Dry Bulk Analyst, Research, SSY.