Home / Shipping News / Dry Bulk Market / Chinese firms lift Australian coal orders, as curbs tipped to end

Chinese firms lift Australian coal orders, as curbs tipped to end

Chinese private power companies have started to buy contracts for Australian thermal coal, which could signal an end to China’s import restrictions that have sent prices plummeting.

Earlier this year, China placed unofficial restrictions on Australian low-grade coal imports, forcing ships laden with thermal coal – which is used in power plants – to go through onerous customs procedures. Other nations such as Indonesia have not faced the same restrictions.

Opinion has divided on whether the restrictions have been driven by economic or political factors, with some suggesting China is punishing Australia for its ban on telecommunications company Huawei.

Analysts said the rise in new contracts may signal an end to the restrictions.

“Chinese independent [non-state-owned] power producers have started to buy May contracts at $US57 to $US58 per tonne,” Credit Suisse analysts said.

Credit Suisse believes Australian low-grade coal has stabilised around $US56 per tonne, much lower than the $US64 per tonne it was fetching at the start of the year.

“It is not yet clear whether they [the power companies] are taking a risk on imports because it’s too cheap to ignore or they have been given the heads-up by authorities that the informal restrictions may be lifted in May,” the analysts said.

“With this uncertainty, producers remain cautious about Chinese demand, as there remains a risk that importers may default on contracts if they misjudged, leaving distressed cargoes on the water. For the grades [of coal] China buys, the prospect is looking slightly better.”

Coal was Australia’s most valuable export in 2018 with China, Japan and South Korea the main customers.

S&P Global Platts’ Asian thermal coal expert Michael Cooper said private buyers were taking advantage of restrictions driving down coal prices.

“Chinese buyers are looking for May-loading Australian cargoes, and some have booked [low grade] Australian at about $US57 a tonne, though sources interpret this as a risk-taking move essentially banking on the import restrictions for Australian cargoes being lifted in late May,” Mr Cooper said.

“Market sources tell us they can see little economic reason for Chinese buyers to avoid Australian thermal coal. Therefore, some market sources have arrived at the conclusion that there may be more at play in the import restrictions for Australian coal than economic issues.”

Chinese analysts acknowledged Australian coal had faced customs restrictions which another major supplier, Indonesia, had not.

“We are watching whether the policy restriction on Australian coal will be lifted in May as the demand and supply have reached a certain degree of balance,” said Shanghai MySteel’s assistant editor of coal and coke, Mo Minjie.

“However, as Shaanxi and Inner Mongolia, two major coal production provinces, release their productivity, it’s hard to say if the restriction will be lifted.”

He said customs clearance for Australian coal was taking from 40 days to two months.

Reports that Chinese power plants are specifying the lower quality coal in tenders was likely due to the warmer weather, he said.

“In low season, they mostly burn low-grade coals and in winter heating season, they will burn high-grade coals. This is low season now and also we observed that power plants at coastal provinces are lowering their stockpile,” he said.

As rumours abound among Chinese traders that the customs restriction on Australian coal could be lifted in May, several spot purchases were made for boats unloading in June.

A source, who preferred to remain anonymous, said any change on the restrictions will not come until the end of May.

“Everything is pointing to this being on hold until the end of the Australia election,” he said.

BHP, one of Australia’s largest suppliers of thermal coal to China, said the import delays may become the new normal.

“It is unclear exactly how attitudes towards controlling imports will unfold in the medium term, but it seems likely that some form of flexible quota system will be in place for the next few years,” the miner said in its recent commodity outlook.

Thermal coal miners Glencore, Yancoal and Whitehaven Coal were approached for comment.
Source: Sydney Morning Herald

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping