OREANDA-NEWS. March 31, 2015. If you are a coal producer focused on the Chinese market, I am sure you will be scratching your head thinking about the future. Ever since China started imposing restrictions on imports, suppliers have gone on a wild hunt for buyers.

Chinese imports slumped in the seasonally strong fourth quarter last year after China asked its utilities to cut down on imports and urged its domestic producers to keep prices stable. Imports of bituminous, sub-bituminous and lignite fell 6% in 2014, the first decline seen since the 2008 global economic crisis.

So, international coal producers have navigated that rough weather last year. But has anything changed this year?

Yes, but it’s gone from bad to worse.

China’s coal imports, including lignite, thermal and metallurgical coal, hit a 43-month low of 16.78 million mt in January, falling 53.2% year on year – the seventh consecutive year-on-year decline and the biggest decline in the past 15 years.

February was no different, but it was expected because of the week-long Lunar New Year holidays.

The hopeful thought to themselves, “China will definitely come back into the market after the holidays.”

Well, little did they know the coal giant Shenhua had other plans. It began offering huge discounts to Chinese buyers who could perform on at least 50% of their contracted tonnages.

It’s not a small discount when you think that traders are struggling to make even a 25-cent margin on their trades. We are talking about a \\$4-6/mt discount in these past three months.  That’s huge!

What this has done is pull down prices of imported coal prices. China, as many acknowledge, has the ability to push up prices when they are buying in full steam.

India is another major buyer and is importing tons and tons, but they will never push up prices. Indian power plants have their own limitations. They are not free to pass any rise in coal prices through to consumers.

As a result, several of them are still in the red. Yet they keep their power plants running by looking at cheaper options or only buying as much as required from the huge stockpiles at Indian ports.

Coal stocks at 16 major Indian ports were at 16.48 million mt as of March 20, according to Indian ship broker Interocean’s latest data.

At the end of March last year, coal stocks were a mere 7.7 million. So what has led to this big stock build up this time?