Coking coal: Follow the math on China’s import ban

Author Chris Newman, Ferrous Markets senior editor

The math that led China to hit the brakes on Australian coking coal imports last month is fairly simple: there was a giant wave of imports that has already exceeded full-year totals, even after Beijing began tapping the brakes in June.

China imported more coking coal from Australia through to August than in all of the last five years, and by September, Australian imports had eclipsed the record 31.28mn t in 2014.

China's YTD Australian coking coal imports

The wave of Australian imports has been driven by:

  • a wide import-domestic price difference big enough to absorb demurrage costs
  • a 10mn t gap in Mongolian imports caused by Covid-19 lockdowns
  • an exhausted annual quota in December 2019 that delayed imports into 2020

China has an informal annual import quota for all coal types of around 270mn-300mn t. Imports of all coal types reached 239.6mn t by September, short of the 299.8mn t imports in 2019 but on pace to exceed it.

China coal imports ('000s t)
  Jan-Sept 2020 Jan-Sept 2019 ± YOY 2019 2018
Coking coal
All origins 59,380 60,991 (1,611) 74,561 65,194
Australia 33,592 26,224 7,369 30,843 28,704
Mongolia 16,467 26,590 (10,122) 33,773 27,676
Russia 4,372 4,340 32 5,443 4,356
Canada 3,438 2,661 777 3,009 2,135
US 741 839 (98) 1,118 1,978
All coal types
All origins 239,622 250,610 (10,988) 299,849 281,337
Australia 74,911 65,661 9,249 76,954 80,919
Indonesia 107,497 117,166 (9,669) 137,599 125,721
Russia 25,960 28,216 (2,255) 32,244 27,401
Mongolia 19,948 26,356 (6,409) 36,208 36,242
Philippines 4,465 7,373 (2,908) 9,333 4,444
Source: China customs

The new policy suggests further refinement of the quota system. Beijing will not allow Australia to use quota room created by Mongolia. What is unclear is how far the policy will go.

“At some point Beijing said, ‘no more Australian coal’. The pragmatists say that’s because Australia has filled its part of the quota,” Argus correspondent Jo Clarke told the Guardian last week.

“The real concern, when I talk to the market, is what happens next year, whether Beijing is planning to change the system because of diplomatic tensions with Canberra or if the quota will just restart as normal. We don’t know that yet.”

Australia has sought clarity from China with concerns it could be linked to rising political tensions.

Australian mining firms are playing down China’s import curbs and expect coal exports from Australia to rebound in December, ahead of new import quotas in January.

They have a point. The late-year swoon in seaborne imports is nothing new. It has been occurring since 2018.

China seaborne coking coal imports

If China re-emerges as a spot buyer late this year, just when there is higher chance of La Nina weather conditions that could bring wet weather to Queensland, demand will surge just when supplies from Australia are most at risk.

Australia is about two-thirds of global seaborne metallurgical coal supplies.

That math is also fairly straightforward.

Our price assessments and market analysis for iron ore, coking coal, ferrous scrap and steel – including four price assessments against which the LME and CME Group settle their benchmark futures contracts – are included in our daily Argus Ferrous Markets service, which supports market participants with contract settlement and indexation, commercial activity and strategic planning.

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