Chinese Coke Producers Worry on Coal Import Restrictions

Strict restrictions imposed on China for imports of Australian coal are becoming a matter of distress for Chinese coke producers. As now the cost of Chinese domestic coal will be quite higher as compared to seaborne coal, Chinese coke producer will have to depend entirely on imported coal. In-line, if the Chinese coke producers struggle to source imported coal especially from Australia (world largest coal export destination), cost competitiveness will be worse and this will surely impact country's export and exporter's ability.

Earlier, in the month of February, it was reported that Chinese Dalian Port in North China (one of the major port receiving imported material), has banned Australian coal from being received. Furthermore, the discharge time for Australian coal to clear custom at other Chinese ports lifted from around 20 days to 60-90 days. This has already impacted the prices within the seven weeks since the restrictions were imposed.

Continuous supply disruptions from Australia have supported the metallurgical coal prices in the past few months. To add on, it was heard that, initially when the restrictions were imposed, there was a sudden increase in demand from a few local Chinese mill owners. These mills were independently owned which were free from any government controls so they rushed to procure the high-grade Australian material at whatsoever price was available. This supported an increase in seaborne prices as compared to Chinese domestic prices.

Last week, the Chinese coal market also saw stronger buying interest and sentiments as buyers were heard to be actively seeking for prompt cargoes of Australian low ash hard coking coal.

Latest offers for the Premium HCC grade are assessed at around USD 206.25/MT FOB Australia, higher by about USD 1.80/MT above the average rate of USD 204.45/MT prevailing in the week by (22-26 Apr'19). Offers for the 64 Mid Vol HCC grade is assessed at around USD 182.15/MT FOB Australia.

Furthermore, as these restrictions become more strict, it is expected that metallurgical coal prices will be impacted. Increased Chinese domestic coal prices and lower seaborne prices will reduce the competitiveness of Chinese coke producers compared with those outside China.