Chinese state-owned power utilities and steel mills had recently been notified to stop importing Australian thermal and coking coals with immediate effect.
Four government-owned enterprises - namely Huaneng Power International, Inc., Datang International Power Generational Co.,Ltd., Huadian Power International Corp. Ltd. and Zhejiang Electric Power Co.,Ltd. - were heard to have received the verbal notification from China's customs in late September, before the Chinese market closed for the Golden Week holidays on October 1.
According to Mysteel, a China-centric metal markets intelligence providing company, the news was first raised at a coal import meeting of the National Development and Reform Commission. However, due to the fact that no equipment was allowed to be brought to the meeting and the meeting was required to be kept confidential, the authenticity of the news could not be fully verified.
Although the Australian government has not yet been notified of any formal Chinese direction to restrict coal imports, there is growing concern about the coal import ban among traders, because it would considerably reduce the near-term demand for Australian coking coal, and prices thereof would come under pressure.
Until last month, however, Australian coking coal prices had undergone a continuous rally, boosted by aggressive buying in China ahead of the eight-day Golden Week break.
Average spot prices for the premium low-volatile (PLV) hard coking coal (HCC) grade surged by almost 30% during September, as many end-users in China had been taking early positions for securing higher-grade coking coal cargoes in light of the escalating trade tensions between China and Australia.
Australia is China's largest supplier of thermal coal with around 35% share each year; while Australian exports of coking coal surged by as much as 67% in the first half of 2020 on higher infrastructure-led demand from China.
China's coal import restriction would inevitably hurt the multi-billion dollar coal export industry in Australia and simultaneously boost domestic coalminers in China.
Meanwhile, Tangshan and Shandong based steel mills in China have yet to receive notification of the import ban. But the news has already aroused widespread concern in the Chinese market as many buyers will turn away from Australian coal anyway, whether or not the ban is real.
In view of this news, the FOB price of Australian 5,500 kcal/kg NAR thermal coal has dropped from $45/t to $40/t; while the FOB price of Australian Premium HCC coking coal decreased by $7/t to $132/t.
Even as market participants remain unsure about the authenticity of the import ban, there are a large number of imported coal cargoes awaiting clearances for several months at Chinese ports, most of which are Australian coking coal. Some traders are also heard returning goods from foreign mines.
By Aditya Sinha