Coking coal futures in China fell today, as the market weighed up the implications of China's potential return to the spot market for Australian supplies after a more than two-year absence.
The most traded May coking coal futures contract on the Dalian Commodity Exchange fell by 2.3pc from the previous day to 1,770 yuan/t ($257/t), while coke futures fell by 1pc to Yn2,583.50/t on the same platform. Steel and iron ore futures also retreated, partially because of weaker steel sales ahead of the week-long lunar new year holidays in China from 21 January.
Market participants discussed the likelihood of China's return to the fob Australia market, pointing to a meeting between China's main national economic planning agency the NDRC and four other participants, including three power utilities and a major state-owned steel mill. But no official statements were made by the Chinese government or the companies about such a meeting.
China imported an average of 30.5mn t/yr of Australian coal during 2016-20.
"They never banned [Australian coal] officially so they can never remove the ban officially," a Singapore-based trader said. "I don't think there will be any official confirmation [but] seems enquiries from China have increased," another trader in Singapore said.
A Chinese mill was "chasing us relentlessly for a prompt cargo", said an Australian producer, adding that other mills in China were yet to come forward with enquiries. "I received a Chinese trader's enquiry for Australian coking coal for January loading today," said an Australia-based trader, adding that the cargo was meant for a Chinese mill. China's return to the spot market for Australian coals may trigger restocking demand from India, an international trader said. The price increase on the back of China's return may be short-lived but traders will look to ride the momentum, he added.
The spread between the Argus premium low-volatile cfr China index and the fob Australia premium low-volatile index was at $13.30/t on 4 January. The spread had flipped to a discount, implying China-delivered prices were cheaper than for cargoes loading in Australia, in October last year on weak Chinese demand and tighter spot supplies. The spread between cfr China and fob Australia premium low-volatile index moved in a relatively narrow range of a $20/t premium or discount for most of the five years leading to the 2020 unofficial ban. The spread has seen more volatility since last year, with the cfr China premium low-volatile index at a premium of over $200/t in 2021 when China struggled with tight domestic supplies with stringent nationwide environmental policies and safety inspections. But the pressure was eased as Beijing stepped up state intervention and cleared pre-ban Australian coal in October that year, freeing up an estimated 4mn-5mn t of stranded coking coal for the Chinese market.
Australia accounted for 44pc of Chinese annual coking coal imports on average during 2016-19, with the share rising to 49pc in 2020. Australian coal accounted for 4pc of Chinese imports during January-November 2022 after stranded cargoes at Chinese ports cleared customs. China imported 57mn t of coking coal during this period, up from 54.6mn t last year, on higher intake of Russian and Mongolian coal.
Renewed competition
"Fob Australia prices can be expected to rerate back to parity with or a premium over the Chinese market, with international steelmakers likely to suffer a reduction in competitiveness versus their Chinese counterparts," an international trader said. "We need customs to inform us those Australian coals can be cleared otherwise it is not possible to deal with Australian coals," said a Chinese coking coal buyer.
The Argus premium low-volatile hard coking coal fob Australia price has climbed by $51.95/t or 21pc since the start of December. Market participants attributed the increase to growing buying interest as a result of tightening spot cargo availability. Improved trade relations with China-Australia talks also added to market optimism.
