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Clarity on China’s ‘coal cap’


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Coal is still passing through ports in China and reports of a ban look to have been misconstrued. 



Forget the black day for coal; the future for the key Australian export may be a little brighter than first thought. Indeed, reports of a move by China to restrict and coal imports look to have been misconstrued.

A recent Reuters report kicked off a media stir when it suggested China had banned imports of coal from Australia and had plans to eventually cap overall imports from all sources.

Channel checks from ANZ Research so far suggest while there are delays in getting imported coal, it is still getting through. This has been confirmed by conversations with buyers in China and media reports from sources from the physical market suggest the same.

There’s also solace to be taken in the reaction from the spot market. Spot coking coal prices have in fact strengthened, with the Australian FOB premium hard coking coal prices rising in the immediate aftermath. Thermal coal prices were relatively unchanged.

If a ban was in place this Australian-based spot price would have come under immense downward pressure. That’s good news. 



“Channel checks from ANZ Research so far suggest while there are delays in getting imported coal, it is still getting through."



Australian coking coal made up about 50 per cent of China’s total coking coal imports in 2018.

Australia is also the biggest source of premium hard coking coal which is highly sought after due to its high quality. Chinese steel mills would struggle to find alternatives in the short to medium term.

On the thermal coal side Australia’s market share is a lot smaller, around 25 per cent. But demand for high calorific coal from Australia has been high due to environmental regulations in China.

Any restrictions would not be new. Chinese authorities have been adjusting import quotas for some time in an effort to balance domestic and international coal consumption.

The restrictions have been in place for several months now, as inventories and price spreads have been hurting Chinese domestic producers.

This is something ANZ Research warned about in November. The New Year also brings fresh quotas for each importer. These new restrictions apply across the board and thus should impact other suppliers such as Mongolia.

The recent sudden surge in imports may have instigated these latest restrictions. Total coal imports in January rose 228 per cent, month on month, to 33.5 megatons. Inventories also remain at elevated levels and international prices are still high.

Daniel Hynes is Senior Commodity Strategist & Soni Kumari is Commodity Strategist at ANZ

This is an edited version of an ANZ Research report. Registered clients can read the full report at ANZ Research.



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