The price of seaborne thermal coal in Asia may come under pressure as China moves to impose some import restrictions on imports of the polluting fuel.
Several ports in southern and eastern China have introduced controls on coal imports, ranging from bans on unloadings to tightening customs clearances.
Among ports banning imports is the Chuanshon anchorage at Ningbo port, according to a manager at a coal trading house quoted by Reuters on Monday, while Zhoushan near Shanghai is restricting the number of vessels allowed to dock.
What is not clear yet is just how severe these restrictions are, how widespread they will become and how long they will last.
What does appear somewhat clearer is that the authorities in Beijing wish to restrict growth in coal imports in order to support domestic coal prices and encourage an increase in local production.
Certainly, news of the restrictions boosted domestic prices, with benchmark thermal coal futures on the Zhengzhou Commodity Exchange jumping almost 3 percent on Monday to close at 570.2 yuan ($90.94) a tonne.
This was the biggest gain since August last year, although the price is still well below the highest closing price so far this year, which was 678 yuan a tonne reached on Jan. 29.
While the authorities don't officially target domestic coal prices, it's widely believed in the industry that a range anchored around 550 yuan a tonne is a level that Beijing feels provides miners with sufficient revenue while not unduly boosting costs for power generators.
It's also currently a price level that makes domestic coal attractive versus seaborne supplies, especially once the duties and taxes on imported coal are taken into account.
The spot thermal coal price at Australia
's Newcastle port closed at $93 a tonne on Monday, up a mere 0.2 percent from Friday's close.
The price is also down about 15 percent from the peak so far this year of $109.50 a tonne, reached on Jan. 17.
PRICE DIVERGENCE LOOMING?
It's not unusual for prices to retreat after the peak winter demand period, but the risk for the seaborne market is that the restrictions on imports in China actually cuts into demand.
Imports of all types of coal rose 16.6 percent to 75.41 million tonnes in the first three months of 2018, compared to the same period last year, according to China's preliminary customs data.
While not as fast a pace of increase as in the first quarter of 2017, it's likely that the authorities would rather see coal imports retreat rather than rise.
Much will depend on the nature of the restrictions being put in place, making it key to track imports to try and calculate if they are dropping more than what may be seasonally expected.
Vessel-tracking and port data compiled by Thomson Reuters
Supply Chain and Commodity Forecasts suggest April may see a drop in China's coal imports.
Filtering the data to show cargoes already discharged, or awaiting discharge, as well as those already en route to a Chinese port and expected to unload by the end of the month shows imports are likely to be around 17.6 million tonnes in April.
Even if this figure does increase somewhat by the arrival of more cargoes from close-to-China suppliers such as Indonesia, it's still likely that April's imports will be below the seaborne imports of 23.2 million tonnes in March, the 20.8 million in February and the 21.4 million in January reported by Thomson Reuters.
Again, a drop in China's imports in the shoulder season between winter and summer won't be too concerning for coal exporters, but any sign of a sustained downturn will likely result in prices of export coal coming under pressure.
The domestic price of thermal coal normally tracks Newcastle prices, although a divergence is possible, with a notable occurrence being in late 2016 when seaborne prices surged as Chinese buyers stocked up for winter.
It's possible that a policy-driven event such as the current restrictions on imports could strengthen domestic prices relative to seaborne cargoes.
By Clyde Russell