Analysis: Interim deal brings relief to US coking coal

US coal mining firms — having contended with coking coal prices at three-year lows in 2019, a string of chapter 11 bankruptcy filings and mine closures — welcomed yesterday's signing by the US and China of the "phase-one" trade deal.

China agreed to more than double its energy purchases — LNG, crude, products and coal — from the US this year against 2017 levels, and then to double them again in 2021 — by $18.5bn in 2020 and another $33.9bn in 2021. The deal takes effect 30 days from 15 January, but does not break down possible purchases by category.

Coking coal has historically accounted for the majority of US coal exports to China and the trade deal is expected to boost shipments. In 2017 — the last full year of trade before China imposed a 25pc retaliatory tariff on US coal imports — the US exported 2.76mn t of coking coal to China, or around 90pc of its total coal shipments to China, according to trade data.

In 2018, when the price of US high volatile (HV) type A coking coal averaged $198.11/t fob Hampton Roads, China's tariff reduced the competitiveness of US coking coal against Australian material. US coking coal exports to China fell to 1.95mn t in 2018 and dropped further last year, with January-November exports totalling 1.06mn t.

The tariffs imposed by China in August 2018, on top of an existing 3pc levy, left total tariffs on US coal at nearly 29pc, after including port fees and related charges. While yesterday's deal did not remove the import tariff, market participants say it could be cut in the next phase.

In the face of falling European and US domestic demand, China offers US producers a much needed outlet. There are already signs that US firms are setting aside volumes in anticipation of Chinese demand. A European trader told Argus that he had tonnages from a US mining firm — previously bound for India — withdrawn today.

The deal will boost the value of grades that are established in China. "This is potentially great news for Buchanan going forward," a source close to the Buchanan mine said.

Australia's Coronado Coal closed Buchanan coking coal mine in Virginia on 16-26 December. It had built up heavy stocks as it waited for a US-China deal to be concluded, according to the Virginia Department of Mines, Minerals, and Energy.

"China's commitment to take a larger volume of coal from the US will give a bit of a kick to stockpiles in the US," a source at a US mining firm said.

High stocks at US mines have led some producers to offer discounts of 10-15pc to index levels on the seaborne market since before Christmas. Argus' US HV A price fell to a three-year low of $128.25/t fob Hampton Roads just after Christmas, down from $133/t in September and $211/t at the start of 2019. But prices have been supported by higher Asia-Pacific values this year, reflecting Chinese demand, lifting the US HV A price to $139/t fob Hampton Roads yesterday.

New import restrictions on Australian coking coal

The tightening of import curbs on Australian coking coal at the major Chinese coking coal ports of Caofeidian and Jingtang — where customs clearance is being granted on a case-by-base basis — has strengthened optimism among US suppliers.

This sudden tightening of import policy comes after customs clearance regulations at the ports were relexed at the start of 2020. Importers in other regions of China are barred from declaring cargoes at the two ports with immediate effect, according to sources that received the notice.

This new policy has been implemented only "in principle" and buyers say the situation on the ground will be unclear until more updates are available.

"Chinese buyers would be more than happy to import Buchanan and Blue Creek No 4 again, should the tariffs be removed," a US coal buyer in China said. "After all, it does mean more choices for us — with the policies on Australian coal unlikely to change significantly in the long term."

By Siew Hua Seah and Rou Urn Lee