Coal miners dive as China cuts imports
Shares in Australian coal exporters took a significant hit on Tuesday, with Coronado Global Resources, New Hope Corp and Stanmore Coal all down more than 6 per cent.
Australian coal miners could be forced to sell “distressed” cargoes at a discount as China looks to restrict imports of both thermal and coking coal, according to consulting major Wood Mackenzie, as shares in Australian miners tumbled on the prospect of fresh import bans.
China’s reported crackdown on Australian coal comes amid ongoing trade tensions between Canberra and Beijing, and follows Chinese authorities slapping tariffs on Australian barley earlier this year.
Shares in Australian coal exporters took a significant hit on Tuesday, with Coronado Global Resources, New Hope Corp and Stanmore Coal all down more than 6 per cent.
WoodMac analyst Rory Simington said the latest round of restrictions were likely to hit Australian coking coal — which is used in steelmaking — as well as energy coal exporters.
“We understand that the previous bans on utility purchases of Australian coal have been extended to steel mills and the bans for utilities reaffirmed. As of yesterday, almost all major steel mills had been informed of the ban on Australia coal, including coal waiting to offload and sitting on port stockpiles,” he said.
Mr Simington said the latest instructions to coal buyers appeared be to part of China’s attempts to restrict overall coal imports to 2017 levels of about 270 million tonnes, including both coking and energy coal. He said they would affect global prices as Australian producers looked for new buyers for their shipments.
“While coking coal prices have not really been impacted to date we expect there will be significant short-term weakness due to distressed cargoes that will be redirected to other markets.
“For thermal coal, high ash prices are down $US5/tonne since mid-last week and are likely to be pushed back to the distressed levels we saw in the third quarter.
“Benchmark quality thermal coal prices will also inevitably be impacted,” Mr Simington said. A Chinese customs official did not confirm the ban when asked about the speculation on Tuesday, according to a Bloomberg report, but said China planned to “strengthen supervisions of relevant products’ imports”.
Macquarie analysts said in a Tuesday note that the verbal warning to Chinese importers may have resulted from a rush by privately owned steel mills and power stations to buy Australian coal in September after domestic coal prices rose, widening the cost difference between local and imported product. “Market feedback is that at least four Chinese steel mills have tried today to divert Australian coking coal cargoes en route to China — in some cases supply untaken through long-term contracts — to overseas markets,” Macquarie analysts said.
Coal industry sources say that, while talk of new import restrictions is rife among traders, there has been little sign Chinese buyers are preparing to cancel future shipments and it is difficult to know whether the speculation is simply the result of Chinese buyers nearing existing import limits after a buying spree when Australian coal was cheap earlier this year.
Confusion over quota levels continued to create problems in the market, with many utilities and steel mills already hitting their annual limits, Mr Simington said.
“For much of this year there has been a complete lack of clarity, even among Chinese port authorities, about how much quota is actually still available and when and whether additional quota will be released. This is generating huge uncertainty and consequently since May when import controls were tightened and large utilities instructed not to buy Australian coal, many Chinese buyers switched away from imported thermal coal,” Mr Simington said.
“However, at the same time Chinese thermal coal prices have been increasing strongly (amid) concerns about the ability of domestic supply to keep up with strong demand. During September there was an expectation that additional quota would be released and this led to a surge in buying activity for Australian high ash coal — prices increased by $US8/tonne to $US44/tonne. However, as we understand it, probably due to political tensions, this has not eventuated.”
An eventual easing is more likely for metallurgical coal than thermal coal, WoodMac said, given China‘s reliance on Australia for the steelmaking commodity.
“A relaxation of these import controls is much more likely for coking than thermal coal because Australia supplies over 40 per cent of China’s premium coking coal, whereas Australian coal represents less than 2 per cent of China’s thermal coal market.”
China imported about $9.7bn worth of Australian metallurgical coal last financial year, according to the Department of Industry’s chief economist, with the market second only to India in importance to Australia’s industry.
But while coking coal exporters may take a hit from China’s latest move, iron ore bosses say they do not expect to face similar restrictions.
Speaking at Kalgoorlie’s annual Diggers and Dealers mining conference on Tuesday, Fortescue boss Elizabeth Gaines said she believed China’s latest crackdown was aimed at supporting domestic coal mines.
“It has happened in the past when there’s been a ban or a slowdown on coal to protect the domestic industry. It’s a very different dynamic with a much stronger domestic coal industry in China,” she said.
“We haven’t had any feedback from our customers and there’s ongoing strong demand. Steel production rates are up 3.7 per cent to the end of August. That’s getting near the top end of the indicators we had from industry when I was in China in January.
“They thought still might grow by 2 to 4 per cent. So we are seeing strong ongoing demand for iron ore and the iron ore is being consumed, so inventory levels are staying pretty stable.
“We can’t become complacent about it, but there is a very strong trading relationship that has been built over many decades.”
Mt Gibson Iron chief executive Peter Kerr said his company had seen no signs of political tensions flowing into the iron ore market.
“The fundamentals of coal supply and iron ore supply are quite different, in that in China there is a fair amount of coal available from other sources,” he said.
“But for iron ore, China needs seaborne iron ore. The quantity of iron ore within China itself is not major. China is consuming something like 1.2-1.3 billion tonnes of iron ore per year, and I think it’s domestic production is around 200-250 at most. The rest has to come from seaborne trade. We’ve got steady offtake partners who then sell into Chinese steelmakers. We’ve not had any political issues come back to us in our marketing or sales aspects at all.”
Trade Minister Simon Birmingham said the federal government had not been able to confirm the reports of coal bans, despite querying the situation with the Chinese government.
“Australia remains an important supplier of energy resources to many countries across our region and we certainly seek to continue to do so in a reliable manner,” he said.
Senator Birmingham said he had sought discussions over trade tensions with his counterparts in China on a number of occasions so far this year, but Chinese authorities had not been receptive.
