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China May Clamp Down on Australian Coal Imports



May 19, 2020 - Suppliers of seaborne thermal coal are growing increasingly concerned that China plans to suspend coal imports from Australia, and that the uncertainty alone may help to dampen a slight recovery in Australian high-ash coal prices that began last week.

Some Chinese traders expect the suspension of Australian imports to take effect on July 1, although they said they have been told by some customs authorities that Australian cargoes that have already been booked may still be accepted by Chinese ports. At the same time, some Australian producers have been told that alternatively, the government may stop Chinese state-owned enterprises from accepting Australian coal.

In general, market participants expect the unofficial messages from the authorities — which have not been backed up with official documentation — to effectively cut imports of July-loading cargoes as Chinese buyers are waiting for more clarity about the possible suspensions and have slowed bookings of Australian cargoes this week.

Reports of the alleged Chinese plans are understood to be aimed at protecting the domestic coal industry. The plans also came after Australian high-ash coal prices rebounded last week from a multi-year low on perceptions of tighter domestic supplies in China and an open arbitrage window for seaborne coal into China. The swathe of sales of Australian coal into China last week was also prompted by a rush to beat an expected further tightening of prevailing Chinese import restrictions as China-Australia trade tensions mount.

An Australian coal producer continued to offer Capesize cargoes of NAR 5,500 kcal/kg coal today at $45-46/t fob Newcastle for June loading, unchanged from late last week. But some others had seen few bids or offers this week, as the market tried to evaluate the latest news from China.

At least eight cargoes of NAR 5,500 kcal/kg coal ranging from 75,000-130,000t for June-July loading were sold mostly to Chinese buyers on a fob Newcastle basis last week. Prices rose as the week went by, accounting for a relatively wide range in fob deals concluded at $40.10-44.75/t.

A few big Australian coal importers and coastal power plants in China said today they had not received notices of a suspension of coal from this destination. Several market participants think that the Chinese government may have created the uncertainty to dampen Australian coal prices and slow imports, which have been high this year following pent-up demand at the end of last year when import curbs tightened.

Concerns that Beijing will ban coal imports have been fanned by China's decision earlier this month to suspend beef imports from the four major Australian beef exporters and tightening of customs inspections on Australian wine, following mounting political and trade tensions between the two countries. The latest tensions have been further fanned by Australian support for the US to start an inquiry into the origins of the Covid-19 outbreak in Wuhan earlier this year.

China's customs authorities slowed the clearing of Australian cargoes in February last year, and it currently takes more than 40 days at most ports. But thermal imports from Australia in the first quarter still surged by 63pc on the year to 16.95mn t, customs data show.

The high imports in the first quarter may have helped to prompt the authorities to start tightening import quotas earlier than usual this year. Guangxi, Guangdong and Fujian provinces are reported to have already used up their import quotas for 2020. A few large buyers, including cement plants and utilities, are also thought to have been asked by customs authorities to stop buying imported Australian cargoes.

Seaborne vs domestic coal arbitrage in China yuan/t