A worker walks past piles of coal at a factory in Huaibei city in east China's Anhui province in 2017. Photo: AFP / Huang Shipeng / Imaginechina

Tariff reductions on all coal products entering China will not help lower prices as logistics remain the biggest challenge to securing sufficient supplies, according to analysts.

The State Council announced on Thursday (April 28) that China would set all coal tariffs to zero from May 1, 2022 to March 23, 2023, to boost coal supplies and lower prices so power plants could provide cheaper energy to companies including export-geared manufacturers.

However, analysts said that coal prices in China would remain high for some time as imports had been affected by big city Covid-19 lockdowns over the past two months. They said the logistic problems were fueled by the sudden lockdown of the port district in Qinhuangdao, China’s largest coal trading hub, from April 28.

Last September, China experienced a nationwide power crunch as power plants lost their profit motive to maintain output due to a sudden spike in global thermal coal prices and government-imposed caps on electricity prices.

In northeast China’s Liaoning, Jilin and Heilongjiang provinces, local government power cuts resulted in major disruptions to the daily lives of people and business operations. In south China’s Guangdong province, factories faced limited power supplies and were under heavy pressure to complete Christmas orders by October.

The State Council in October ordered Shanxi, Inner Mongolia and Shaanxi provinces to boost coal mining output and allowed power plants to increase electricity prices by 10-20%. In November, in a low profile move, China also allowed the clearance of a shipment of coal previously sent from Australia, although it still maintained a ban on Australian coal due to diplomatic disputes.

A cargo of Australian coal bound for China before relations turned sour. Photo: AFP

As of early 2022, China’s power crunch problems had eased even though coal prices remained high. According to an article published by the China National Coal Association on January 20, the price of Shanxi’s coking coal rose 177% from 1,480 yuan (US$245) per tonne in early 2021 to 4,100 yuan per tonne in mid-October.

It then fell to 2,350 yuan per tonne at the end of December but was still 58% above the level in early 2021. In January, the National Bureau of Statistics said China’s domestic coal output rose 4.7% to 4.07 billion tonnes in 2021 from 2020, while coal imports increased 6.6% to 320 million tonnes.

Last December, the country’s coal output rose 7.7% year-on-year after the State Council ordered a boost in supply. On April 20, the State Council said China would add new coal mining capacity of 300 million tonnes this year.

On Thursday, the State Council’s Customs Tariff Commission said seven types of coal products would enjoy zero tariffs over the next 11 months, starting May 1.

Based on the World Trade Organization’s most-favored-nation rate of duty, China has now imposed a 3% tariff on unformed bituminous and coking coal and unformed and formed lignite coal, a 5% tariff on other unformed coal and briquettes, ovoids and similar solid fuels and a 6% tariff on other unformed bituminous coal.

A China Coal Transportation and Distribution Association analysis said the tariff cut would not be much help in reducing China’s coal prices as importers would not likely buy more Indonesian coal due to high global coal prices.

Zuo Qianming, chief analyst at Cinda Securities, said only those importing coal from Russia and Mongolia would benefit from the tariff cut as importers had already enjoyed zero tariffs for Indonesian coal.

Cheng Xiaoyong, a director of Baocheng Futures Finance Research Institute, said global coal prices remined high as not only China, but many European countries, had strong demand for coal.

A coal miner in Xingtai, China. Photo: WikiCommons

Cheng said China was importing coking coal from different countries such as Mongolia and India but logistics had been adversely affected by China’s recent virus outbreaks and city lockdowns.

On April 21, the General Administration of Customs said that China’s imports of coking coal fell 23.31% to 3.76 million tonnes in March from a year ago as the fuel’s price jumped 119%. The country’s imports of bituminous coal dropped 42% to 726,800 tonnes for the same period as its price increased 85%.

The Newcastle coal futures benchmark reached $422.65 per tonne on March 7, up 77% from $239 per tonne on February 25, after Russian troops invaded Ukraine. It eased in late March and closed at $326.05 per tonne on Thursday.

Meanwhile, coal distribution was disrupted after Qinhuangdao’s Haigang district, which includes a giant coal handling complex on the coast of China in northern Hebei, was locked down on Thursday due to a single Covid-19 infection. Shares of Chinese coal miners increased by 8-10% on the same day.

Read: Indonesia export ban puts China in a coal bind

Read: China’s power prices stoking runaway factory inflation

Follow Jeff Pao on Twitter at @jeffpao3