Market awaits clarification on rumored Chinese import ban on Australian coals

Coal market participants, both in and outside of China, are anxiously awaiting clarification of the widespread rumor on China's possible ban on Australian coal imports.

However, some market participants are viewing this as a common practice by China to reduce coal consumption in energy consuming industrial sectors such as steel to reduce pollution and carbon emission.

The rumor, widespread in the market after the Chinese National Day holiday over October 1-8, says that some domestic power plants and steel mills have been orally notified of temporarily suspending the imports of the Australian coal, and no date has been mentioned regarding the termination of the initiative.

"China's Customs will continue to strengthen the supervision on imports of certain products", said Li Kuiwen, spokesperson of the General Administration of Customs (GACC) said at the conference on October 13, in response to the query of this matter, without elaborating on either the products or origins under the watch.

"We have noted certain new restrictions on coal imports", a Shanghai-based trader admitted, "but we are still waiting for further clarification from the related authorities on whether this will be impacting the coal vessels already on the way to China and those queuing at the berths or just new bookings", he added.

The latest assessment of the premium low-volatile coking coal import price dropped by $5/t from September 30 to $144/t CFR North China on October 12.

A Shanghai-based analyst, nevertheless, expressed little surprise at the speculated move by the Chinese authority.

"Behind the speculated restriction could be China's efforts to reduce imports of coal, as China's energy consumption is largely fueled by domestically-produced coal, and Beijing has been optimizing the domestic supply by commissioning advanced and large-sized coal mine projects", he commented.

Besides, China has also been painstakingly reducing the proportion of fossil fuel in energy generation so as to be more eco-friendly by reducing pollutant and carbon emission, and Xi Jinping, China President, promised carbon neutralization in the country by 2060.

This has not been the first year for China to control imported coal either. As early as in 2018, China adopted some restrictive measures too on noting the surge in coal imports.

It is not surprising, though, the market attention has been focusing on Australia, as the country had been China's top coking coal supplier by August or the second largest in 2019 after Mongolia, and coking coal is Australia's third largest commodity too after iron ore and liquefied natural gas.

According to detailed data, China imported 220.8 mn t of coal and lignite including coking coal over January-August, with about 30% from Australia, but the proportion was much higher where coking coal imports were concerned, as the tonnage from Australia totaled 31.6 mn t, or about 60% of the total coking coal China imported over January-August, according to data from GACC.

Besides, over January-September, China imported 239.4 mn t of coal and lignite in total, down 4.4% on year, according to the latest data from GACC, but it was already very close to the country's reported target of containing the total volume within 270 mn t in 2020.

China's coal and lignite imports totaled 299.7 mn t in 2019, or 6.6% higher on year, GACC data showed.

Whether being true or not, China's domestic coking coal market has felt the less pressure on imports, and the coking coal futures market surged immediately to the rumor, with the closing price of the most-traded January 2021 coking coal contract on the Dalian Commodity Exchange up first by 3.7% on October 9 from the closing price of September 30, the first working day after the long National Day holiday in China on October 1-8.

The DCE coal contract grew another 2.4% from the closing price of October 9 to close at CNY 1,343.5/t ($199/t) on October 12, according to the exchange's data.

Note: This news article is published under a data exchange agreement between CoalMint and Mysteel - a China-centric insight and global metal markets intelligence providing company.

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By Aditya Sinha