China, the world's largest importer of coal, has seen a sharp decline in the share of coal it imports by sea. According to a new report from Oceanbolt, a commodity market intelligence provider of Veson Nautical, the percentage of China’s total coal imports transported by sea has dropped significantly, from 93% between 2015 and 2022 to just 76% in 2023/24.

This shift comes despite a 62% increase in total coal imports to China, which reached 473.4-million tonnes in 2023. The rise in imports, however, was not matched by an equivalent growth in seaborne coal shipments, which increased by only 45% over the same period.

The change reflects China’s growing efforts to diversify its coal supply sources, moving away from traditional exporters and capitalising on geopolitical factors, such as the war in Ukraine, to secure discounted coal from alternative sources, including land-based transport routes.

AUSTRALIA BEARING THE BRUNT
Australia, which has historically been a major supplier of coal to China, has seen its share of the Chinese coal market significantly decrease. From providing 26% of China’s coal imports in 2019, Australia’s share plummeted to just 11% in 2023, a direct result of an unofficial ban on Australian coal imports that was lifted only in 2023. Since all of Australia’s coal exports to China are transported by sea, this decline in seaborne shipments largely explains the recent drop in seaborne coal volumes.

Mikkel Nordberg, senior maritime analyst at Veson Nautical, noted that Australia has been hit hardest by the shift to alternative supply sources. "While there has been a recovery in imports of Australian steam coal to China after trade resumed in 2023, the coking coal trade has been heavily impacted," he said. In fact, Australia exported just 2.8-million tonnes of coking coal to China in 2023, a staggering 91% drop from pre-ban levels.

CHEAP RUSSIAN COAL SEES IMPORTS SURGE
Russia has become a significant alternative supplier to China, with its share of Chinese coal imports growing substantially. From 11% in 2019, Russia’s share nearly doubled to 22% by 2023. This shift can largely be attributed to the sanctions imposed on Russia by Western countries following the war in Ukraine, which effectively cut off Russian coal exports to the EU and other Western markets. As a result, China has taken advantage of discounted Russian coal, significantly increasing imports.

Nordberg highlighted the growth in Russian coal exports to China, noting that between 2022 and 2023, Russian coal exports surged by 50%, reaching 102-million tonnes.

"With reduced global demand and limited buyers, China has capitalised on the opportunity to purchase Russian coal at discounted prices," he said.

However, much of this increase in Russian coal exports to China has been delivered by land. According to the report, while Russian coal exports to China increased by 34-million tonnes from 2022 to 2023, only 18.7-million tonnes of this growth was transported by sea, suggesting that the remaining 15.3-million tonnes were moved via land routes.

MONGOLIA EMERGES AS A MAJOR PLAYER
Mongolia is also benefiting from China’s diversification of its coal supply sources. The landlocked country saw a significant surge in its coal exports to China, with shipments increasing by 125% in 2023, reaching 70-million tonnes. Mongolia is now China’s largest supplier of coking coal, accounting for 53% of China’s total coking coal imports in 2023.

The Mongolian Coal Association has stated that the country has the potential to produce up to 100-million tonnes of coal annually, although its export capacity has been limited by infrastructure constraints. However, in 2023, Mongolia made significant strides in improving its coal export infrastructure, including the inauguration of a new railway line linking its coal mines to the Chinese border.

"In 2023, Mongolia accounted for 53% of China’s total coking coal imports," Nordberg said. "As a landlocked country, all of Mongolia’s coal exports are transported overland, which means that it is effectively replacing the seaborne coking coal volumes previously sourced from Australia."

IMPACT ON SEABORNE TRADE AND BULK CARRIERS
The report concludes that the shift towards alternative coal imports could have significant consequences for global shipping, particularly for bulk carriers. If the land-borne volumes were instead sourced from seaborne routes, the loss of trade could account for a 1% decrease in total ton-mile demand in 2023. This decline has been especially noticeable for larger bulk carriers, particularly Capesize and Panamax vessels, which are typically used to transport coal to China.

Nordberg pointed out that the decline in seaborne coal volumes has had a negative impact on freight rates for Panamax vessels. "This development has unquestionably hurt the Capesize and Panamax class vessels, which are the largest carriers of Chinese coal imports," he said. "It has been particularly evident in Panamax freight rates, which underperformed compared to Supramaxes in Q3, and the usual seasonal rebound in Q4 has not materialised."