By Jo Clarke

October 20, 2020 - China's restrictions on imports of Australian coal could result in UK-Australian firm BHP missing its coking coal guidance for the current fiscal year, the company said today.

BHP has set guidance of 71mn-74mn t on a 100pc basis for June 2020 to July 2021, as it looks to ramp up production in the second half of the period.

The firm shipped less coking coal in July-September than in any quarter in the previous year as demand was disrupted by lockdowns in several key markets outside of China. Australian coking coal mining firms diverted shipments to China in the period, filling annual quotas more quickly than usual.

Beijing has issued verbal instruction to key steelmakers to stop buying Australian coal, although it is unclear whether this is related to the quotas being full or the souring diplomatic relationship between the two countries.

BHP plans to increase its sales January-June 2021, following major wash plant shutdowns at its Blackwater, Goonyella, Saraji and Caval Ridge coal mines in Queensland, as well as maintenance at its export facilities at Hay Point. This will coincide with the opening of new Chinese quotas in 2021. If the ban on Australian coal persists, BHP and other Australian coking coal providers will need to find new markets for their coal, which could force BHP to rejig its guidance for 2020-21.

BHP shipped just 16.66mn t in July-September at an annualised rate of 66.6mn t/yr, leaving it needing to catch up if it is to avoid missing the bottom of its production guidance, as it did last year. This task is made more difficult by a higher-than-average chance of a more active and earlier cyclone season in Queensland associated with the La Nina weather pattern in the Pacific Ocean.

Beijing's intervention in the coking coal market caused prices to fall, but not to the lows seen in mid-August. Argus last assessed the premium hard low-vol coking coal price at $120.25/t fob Australia on 19 October, down from $136/t on 6 October, but up from $105/t on 12 August.

Around three quarters of BHP's share of metallurgical coal output is from the BHP Mitsubishi Alliance (BMA), BHP's 50:50 joint venture with Japanese trading house Mitsubishi. The remaining quarter comes from BHP Mitsui Coal (BMC), its joint venture with Japanese trading firm Mitsui. BHP has an 80pc interest in BMC, which it has earmarked for sale along with its thermal coal assets, most likely through an in-specie distribution to BHP shareholders.