China's Energy Paradox

MARIA: In our first episode, we looked at the bauxite and aluminium supply chain. In the second, we moved from raw materials to agriculture and food security. Today, we return to energy—through coal.

The link between these markets is China. This summer, with disruption around Hormuz sharpening Asia's focus on energy security, the role of coal has become harder to overlook.

China is expanding renewables at extraordinary speed, but coal continues to underpin its power system. In the first half of this year, renewables supplied around 41% of China's electricity, while coal still accounted for close to 50%.

China also consumes around 30% more coal than the rest of the world combined.

MARIA: In July, coal imports rose by around 23% to their highest monthly level of the year, even as thermal generation fell by approximately 4%.

The explanation lies in domestic production, inventories and import prices—and how these factors shape China's demand for seaborne coal.

MARIA: I'm Maria Bertzeletou, Senior Market Analyst at Signal Research, and joining me today is my colleague Esther Chua, Senior Dry Bulk Analyst.

Esther, let's start with the big picture. What's the one thing you think the market keeps getting wrong about Chinese coal?

ESTHER: I think it's treating coal imports as a direct read on coal demand. China produces most of the coal it uses domestically, so imports are the balancing tonne — especially for coastal buyers. For the seaborne market, what is important is the gap between what China needs and what its domestic mines can supply.

MARIA: How sensitive are import volumes to changes in China's domestic production?

ESTHER: Even a relatively small change in production creates a much bigger swing in imports. And July is a very good example of exactly that.

MARIA: Let's look at what changed in domestic production. What happened at the mines?

ESTHER: China came into 2026 with higher domestic supply. Production had been very strong, so imported thermal coal was slow at the start of the year. Then the fatal mining accident happened in May, causing tighter safety inspections. Since then domestic production started to reduce.

MARIA: How far did production fall?

ESTHER: Enough to affect the seaborne market. Raw coal production fell 9.7% in June and 10.1% in July, to around 340 million tonnes. The more important figure is the 2.9% year-to-date decline. That may sound insignificant but against China's enormous production base, it represents a substantial physical volume.

MARIA: Did coastal buyers replace all of that lost production with imports?

ESTHER: Coastal buyers did not need to replace the entire shortfall with imports. The key question was whether lower domestic supply would reduce stocks and push local prices high enough to make imported coal attractive again.

MARIA: And we can see that clearly in the customs data. China imported around 44 million tonnes of coal in July—up 23% and the highest monthly total of the year. What makes July interesting: electricity generation was largely unchanged. Thermal output fell by around 4%, while hydro and nuclear rose by around 7%, and wind and solar by around 5%.

MARIA: Esther, how should we read the recent rise in imports alongside weaker thermal generation?

ESTHER: That is why I would not describe July's import increase as a demand surge. China was not suddenly burning much more coal. China had less domestic coal available, so coastal buyers replaced part of the missing supply with imports. The change came from the supply side, while power demand remained fairly soft.

MARIA: Is that likely to be temporary, or are we looking at a longer shift?

ESTHER: I would not call it structural yet. The first trigger was quite specific: tighter safety inspections and lower mine output. If production normalises, some of that replacement buying should unwind.

MARIA: What happens if production takes longer to recover?

ESTHER: Then a temporary supply shock supports imports for longer than the market expected. That's the scenario I would watch into Q4 — mine output still constrained, inventories low, prices firm.

MARIA: Beyond mine supply, what else should we be watching?

ESTHER: Hydropower is also important. When hydro generation is strong, thermal plants do not need to work as hard, limiting import requirements. So I would assess mine supply and the power-generation balance together.

MARIA: Have we seen any of that pressure ease since July?

ESTHER: Not fully. Domestic prices moved higher, mine recovery remained slow in some areas, and weather continued to disrupt mining and transport. This provides some near-term support for imports.

MARIA: Let's go back to price. By late August, benchmark prices for 5,500-kilocalorie thermal coal at Qinhuangdao had risen to around 880 yuan a tonne. Prices for Indonesian and Australian cargoes had also moved higher. Esther, what does that price movement tell us about China's appetite for imported coal?

ESTHER: It tells me the market is responsive. When domestic supply tightens, import buying can return fast. But if mine output recovers and domestic prices fall, that support can also disappear quickly.

MARIA: What determines whether an imported cargo is competitive?

ESTHER: The landed economics. Indonesian low-calorific-value coal has an advantage because it is close to China. It is relatively inexpensive to deliver to coastal power plants. Australian 5,500-kilocalorie coal is more competitive when Chinese domestic prices rise far enough to narrow the gap. When that happens, China's sourcing mix can change even if its total import requirement does not move much.

MARIA: Let's compare that with what we see in our voyage data. Seaborne thermal-coal arrivals fell by 13.5% between January and May; however, the rebound in June and July narrowed the seven-month decline to 4.8%. Why does that picture differ from the customs data?

ESTHER: The two datasets measure different things. Customs data cover all coal types, including overland imports, while our series measures seaborne thermal coal. For shipping, the seaborne series gives us a more direct indication of cargo demand and vessel employment.

MARIA: Let's turn to what this means for the fleet. Import volume is only part of the picture. Where the coal comes from—and how far it travels—determines how much vessel capacity it absorbs. Esther, how does the shipping impact differ between coal from Indonesia and Australia?

ESTHER: I look at it as volume versus vessel days. Indonesia supplies most of China's Panamax thermal-coal volume because it is nearby and produces the low-CV coal used by coastal buyers. Last year, Indonesia accounted for around 69% of the volume but only about 52% of the tonne-miles. Australia contributed less than 18% of the volume but roughly 32% of the tonne-miles.

MARIA: Esther, where would the market feel a shift in sourcing first?

ESTHER: The Pacific vessel list. Indonesian voyage is shorter, so vessel returns to the market relatively fast. Australian voyage keeps the vessel occupied for a longer time. A change in sourcing can begin tightening vessel availability before it becomes obvious in the headline import figures.

MARIA: And is that shift actually likely, or are we in thought-experiment territory?

ESTHER: This shift is not only theoretical. Indonesia has physical and policy constraints from mining quotas, weather, barge availability. Australia is price-sensitive. So if Indonesian supply tightens while Chinese domestic prices remain firm, Australian material becomes more competitive and the tonne-mile effect can strengthen quite fast.

MARIA: Let's bring this back to the fleet. Panamaxes carried 216 million tonnes last year, accounting for around 66% of China's seaborne thermal-coal trade.

This year, the change is more visible in tonne-miles. From January through July, Panamax volumes reached around 115 million tonnes, up 4%, while tonne-mile demand rose by 10% to around 318 billion.

Esther, why has tonne-mile demand grown so much faster than volume?

ESTHER: Because the average haul lengthened 5% — and the gap between those two growth rates matters more than either number on its own. The tonnes are only slightly higher, but the ships are doing considerably more work. That's why Panamax is the clearest place to see the sourcing shift come through.

MARIA: That supports Panamax employment, but it does not automatically translate into higher freight. Coal is only one part of the market; grain, minerals, competition between basins and vessel supply also shape the rate outcome.

ESTHER: Agreed. And what I would look at next is whether those extra vessel days are genuinely tightening the Pacific list. Longer voyages absorb more ships — but if the position list is still long, tonne-mile demand can rise without freight following.

MARIA: If China's import demand strengthens again, what would you watch first—the cargo book, or freight?

ESTHER: Cargo activity and positioning first. More Indonesian enquiry provides employment for Pacific Panamaxes, but those vessels return to the market relatively quickly. Australian cargoes keep the ships busy for longer and delay their next available date. So I would not only count the new cargoes — I would also look at how long each cargo removes a ship from the vessel list.

MARIA: Before we close, Esther, what are you watching from here?

ESTHER: First, domestic mine output — not only whether production recovers, but how quickly and in which areas. Second, the power balance: demand, hydropower and renewable generation. This tells us how much thermal generation China needs each month. Third, the Indonesia–Australia split.

MARIA: From the freight side, I'd add Pacific Panamax positioning. Cargo growth begins to matter when ships are being absorbed faster than the tonnage list can refill.

With that in mind, what's your view heading into the fourth quarter?

ESTHER: I am reasonably constructive on Panamax employment, but more cautious about the headline import volume. If domestic mine production returns to normal, some of the summer import strength should fall but tonne-mile demand may not fall by the same amount. If Australia keeps a larger share of the sourcing mix, vessels will remain employed for longer even if total imports ease. That is the key point I would watch in the fourth quarter: weaker import volumes do not always mean weaker Panamax employment.

MARIA: Esther, thank you.

ESTHER: Thanks, Maria.

MARIA: And thank you for watching Current Intelligence. Follow the signal — we'll see you in the next episode.