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Analysis: US coking coal gains prominence in China

12 Jun 2018 12:20 (+01:00 GMT)
Analysis: US coking coal gains prominence in China

Singapore, 12 June (Argus) — Consistently high Australian coking coal prices and efforts to diversify supply sources have stirred Chinese interest in buying more US-produced coking coal, raising the prospect of Beijing lifting its tariffs on US imports.

Chinese steelmakers have gained a better understanding of how to work US coking coal into blends in the past year, and could be interested in ramping up imports this year as higher prices boost US supply.

US coking coal brands such as Buchanan can lower ash content considerably when added to blends, making it ideal to be used together with the high-ash coking coals commonly found domestically in China, US coal marketers said.

"As long as Australian coking coal remains at the high prices we are seeing now, US coking coal will be attractive to Chinese buyers," a US coal sales manager said.

Australian premium low-volatile hard coking coal exports were last assessed at $199/t on a fob basis, while US low-vol hard coking coal was assessed at $170.50/t fob Hampton Roads.

The Chinese government could also reduce or eliminate the 3pc tax on US coal imports to improve supply security, a north China steelmaker said. "If there is a tax rebate we would be happy to buy US coking coal, since supplies from Australia are very tight right now. It is always better for mills to have more supply options," he said.

Marketers for US coking coal typically use sales to the Chinese market as a way to gain leverage over buyers from other regions such as Japan, South Korea and India, the US sales manager added. "When the marketers are negotiating contracts with the Japanese, Koreans or Indians, floating some cargo to Chinese buyers tends to earn them a better contract price as other regional buyers are afraid of the Chinese absorbing all available cargoes," she said.

China's imports of US met coal revived last year to hit 2.8mn t, after China took no US coal in 2015 or 2016 because Australian coal prices were relatively low and the US coal industry was undergoing a contraction. But imports fell in February and March this year to just 71,060t and 40,000t respectively, down by over 80pc compared to 427,211t and 267,064t for the same months last year.

Escalating tensions over the US-China trade deficit have added another dimension to the narrative. China's main economic planning agency the NDRC has consulted with several major coal trading executives about importing more US coking coal into China, market participants said.

"The fact that the NDRC is consulting major stakeholders could mean that they have an intention move towards lowering the barriers for US coals to enter China, but this is by no means anything official," a Chinese trader said.

No Chinese steelmakers are known to have received such directives from the government.

There are other limits on how much US met coal Chinese steelmakers would be willing to import, even if the Chinese government offers incentives. Chinese mills mostly look to the import market for low-ash, low-sulphur coking coal such as Australia provides, but US coal is not low enough in sulphur content to interest Chinese mills unless domestic prices are much higher, buyers said.