China coking coal buyers race US tariff deadline

Chinese coking coal buyers are rushing to take delivery of US cargoes before the implementation of a 25pc tariff next week that will effectively end the spot trade.

One Chinese steelmaker has a US coking coal cargo due to arrive at an unconfirmed port on 21 August, just two days before the tariffs take effect on 23 August. But the buyer is concerned that administrative delays at the arrival port could delay customs clearance until the tariffs are implemented. If that happens, the tariff increase from 3pc to nearly 29pc, including customs fees, will be fully borne by the buyer.

Only a handful of Chinese buyers risk being hit by the tariff implementation. Most Chinese steelmakers have scaled back their purchases of US coking coal since the tariffs were first proposed in June. It takes around 40-50 days for vessels to ship coal from the US east coast to China.

But affected buyers are racing to beat the tariff implementation. Importers must secure a port that will allow them to unload their cargo, but restrictions on the berthing and unloading of imported coal at most ports in south China have reduced options.

"At the moment, there is nothing much that we can do to help except try to communicate to the vessel pilot to go faster," the seller of the cargo said. "Now the buyer is trying to secure clearance from some ports located further north."

Redirecting the cargo to a south China port would cut the journey time by a few days and ensure it would arrive well before 23 August, providing enough time to clear customs before the tariffs kick in. But the south China coal import restrictions, along with the fact that 2018 volume quotas have almost been exceeded, means there is only a slim chance that the cargo will be allowed to clear customs in the south.

Another early July-loading US coking coal cargo bought by a Chinese steelmaker safely reached the destination port today and will be able to obtain clearance from customs well ahead of 23 August, a Zhejiang-based trader said. But this could be one of the last US imports as trade tensions between Beijing and China continue to escalate.

Resales of cargoes to destinations outside China have also proved a challenge. A trader with a US cargo that is due to arrive in China on 20 August was heard trying to redirect the cargo towards Japan. But this is not a workable solution as the Japanese market has little appetite for these types of spot cargoes, a Japanese trader said.

Wider impact

China's potential shift away from US supply may have a knock-on market impact in the coming months. The US accounted for 2.8mn t, or 4pc, of China's 69.9mn t of coking coal imports in 2017.

"I think it is safe to say that nobody in China will consider buying US coal after this," a US coal sales manager in China said.

Buyers have alternatives. Some Chinese traders have been marketing a 65 CSR coking coal grade to steelmakers by blending a premium Shanxi coking coal product with Mongolian supply, the sales manager said. "The trader is selling it at about $160-165/t cfr China, which is really competitive especially considering the quality of the coal. We have heard that a good number of north China mills are buying this blended product for use, instead of trying to secure Australian premium mid-volatile cargoes which are also a lot more expensive," she said.