A major US coking coal supplier and trading firm has been marketing blended Australian cargoes to the Chinese market to meet demand in an increasingly undersupplied second-tier coking coal segment.
The supplier has been marketing blended coking coal under the brand name Wissler containing several unspecified brands of Australian coal. The blend, which has a coke strength after reaction (CSR) of about 60 and moderate ash and sulphur content of 8.9pc and 0.47pc respectively, is initially targeting China, where semi-hard and second-tier hard coking coal is popular among steel producers as a blend substitute.
This blended cargo was last heard traded in mid-February at $185/t cfr China to a steel producer and steelmaking input trader. Around the same time, Australian producer Jellinbah sold two cargoes of Lake Vermont with a higher CSR and lower ash content than Wissler at $188-190/t cfr China.
Another cargo of Wissler with a loading date in March was offered this week at $193.25/t cfr, underpinning the seller's expectations that tight supply will continue to compel buyers to pay higher prices.
"There is an immense shortage of tier two coking coal in the market right now, so it is hardly surprising that people are willing to pay slightly more for a cargo whose specifications seem pretty ideal," a south China steel producer said. "Anyway, people do not have much of a choice."
Supply of established Australian brands in the second-tier segment has dried up. US energy firm Peabody's Mavis Downs reached the end of its mining life last year, while the majority of US investment company's AMCI's Carborough Downs is locked into long-term contracts with little available for spot sales.
Jellinbah's Lake Vermont supplies have been hit by rail capacity cuts by operator Aurizon because of a court ruling that imposes an earnings cap on the company. The Lake Vermont mine has maintained its usual production rates, but the rail capacity cuts have forced the producer to scale back deliveries, resulting in increased coal stockpiles at the mine, market participants said. Aurizon has accepted a revised access undertaking from the Queensland Competition Authority that essentially increases its earnings cap, but Jellinbah expects delays to continue and export capacity to remain limited.
But there could be resistance from some China buyers to second-tier cargoes blended from different mine sources. "The buyers are essentially comparing this blended cargo to Lake Vermont, which comes from a single source," a Chinese trader said. "Buyers are definitely still less comfortable taking blended cargoes because of the lack of clarity over exactly which coals go into it."
Separately, signs of progress in trade talks between the US and China have raised the prospect of Chinese tariffs on US coal being lifted or at least loosened if a deal is reached.
