Australia's coking coal exports stay firm in 2021 despite China ban. Know why?

Coking coal exports by Australia decreased by just 1.4% on the year to 165.4 million tonnes (mn t) in 2021 compared to 167.8 mn t in 2020, SteelMint data shows.

The decline in exports has been surprisingly low despite China's unofficial embargo on Australian coal imports and refusal to offload Australian cargoes at ports since Oct'20.

The disruption has been greatest for metallurgical coal. Australian exports account for 58% of the global seaborne trade in metallurgical coal, compared with 21% in thermal coal. In 2019-20, China took a little over a third of Australia's premium metallurgical coal exports, with Australia supplying about 55% of China's imports.

Australian producers have been able to cushion any impact of the trade dispute by diversifying their export customer base, with exports to India as well as Japan, South Korea, Vietnam and especially Taiwan rising year-on-year.

Shipments to India up 28%

Australia's coal exports to India increased 28% on the year to over 56 mn t in 2021 compared to 43.7 mn t last year. Higher demand from Indian steel producers compared to CY'20 drove exports. India's pig iron production in 2021 was much higher compared to the last three years and a sharp recovery in Indian crude steel production was observed in 2021.

In addition, exceptionally high global met coke prices kept India's met coke export market abuzz through most of 2021. Surge in global steel demand after the second wave of the pandemic and tight supplies because of China's withdrawal from the met coke export market greatly boosted enquiries from India.

India's met coke exports were recorded at 1.24 mn t in CY'21 driven by demand from steel producers in Europe as well as Asia. Considerably higher export realisations compared to domestic prices encouraged met coke exports.

Growing ESG concerns in Europe and the advanced Asian economies have capped coke production in many countries and Indian suppliers rushed to fill the vacuum in the seaborne market left by China.

Rise in exports to Japan, South Korea

On the other hand, Australia's coking coal exports to Japan rose by 15% on the year to 35.5 mn t, while shipments to South Korea increased more than 40% to 23.3 mn t. Surprisingly, Taiwan clocked imports of over 7 mn t compared to 1.6 mn t last year - an increase of over 340% y-o-y.

Japan, South Korea and Taiwan have been major consumers of high-CV Australian coal given the lower cost of freight in comparison to other origins of high-CV coal.

Soaring demand from blast furnace steel producers in Asia following the global economic recovery after gradual easing of pandemic-induced restrictions boosted met coal exports by Australia, although the global semiconductor shortage impacted steel demand.

Trade dynamics

Much as Chinese buyers sourced coal from Colombia, the USA, Mozambique and Russia as supply tightness gripped the seaborne market after its unofficial ban on Australian coal, Australia recorded higher shipments to traditional buyers of US coking coal as trade dynamics changed.

For example, Australia's exports to Brazil increased 60% to nearly 6 mn t in CY'21, with the South American country sourcing 4.5 mn t from neighbouring USA - down 27% y-o-y.

The Resource & Energy Quarterly of the Australian government's Department of Industry, Science, Energy & Resources estimated in Sept'21 that coking coal exports are expected to rise to 186 mn t by 2022-23. Supply chains disrupted by China's informal import restrictions have largely reorganised.

Australia's met coal export values, too, are forecast to rise to $30 billion by 2022-23.