Atlantic coking coal: China tariff exemption lifts mood

Beijing's decision to allow buyers of US coking coal in China to apply for tariff exemptions from 2 March has buoyed sentiment among US miners significantly this week.

While US miners have welcomed the possibility of increasing their shipments to China, most do not expect an immediate surge in US coking coal prices.

The Argus daily fob Hampton Roads assessment for low-volatile coking coal in the US has moved up another 75¢/t to $135.25/t today, supported by supply tightness in China but also partly weighed down by possible steel capacity cuts in the country. The high-volatile type A daily price is up by 50¢/t to $137.50/t fob Hampton Roads, as is the high-volatile type B price at $125.50/t fob Hampton Roads, because any upside from increased Chinese demand is still tampered by lacklustre demand from European mills that are in greater proximity.

The exemption announced yesterday applies to China's retaliatory tariffs on US coal imports imposed in August 2018, and will bring the effective tariff down to 3pc for US coal shipped to China.

China's ministry of finance reduced tariffs on US coking coal by 2.5pc on 6 February, but the impact of the reduction on an effective rate of 33pc — including the 3pc original import tax, 25pc retaliatory tariff and variable inspection and quarantine charges — was deemed negligible by market participants.

"We have been seeing some tentative interest from Asia, and China's exemptions may open up a bit more interest, but China is not running at full capacity yet due to the coronavirus outbreak," said a trader. "I think there will be a spike in demand once there is more clarity on the situation."

Poor spot demand in Europe has also meant that some miners are more cautious about the impact of these tariff exemptions on their business. "This is a huge change and many people will be pleased about that," said one US miner. But there is still little-to-no spot demand in Europe in the near term, and some mills have yet to firm up their annual requirements for the next supply contracted year starting in April. European mills seem to have carry over volumes from their annual term contracts and US producers will expect these commitments to be met, said the miner.

The US east coast-to-Rotterdam Panamax rate has risen by $1/t to $9/t this week, as the tightening of tonnage in the Atlantic amid increased coal and grain export demand gave the most significant boost to rates since mid-December.