China may be back to work but Japan & Korea are still battling COVID-19; and it could hit coking coal
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China’s gradual emergence from COVID-19 has given hope to exporters that the worst of the crisis is over.
As the Asian powerhouse emerges from the crisis, the government has put coal at the front and centre of its plans to restart the economy.
But they are far from Australia’s only coking coal trade partner.
Neighbouring South Korea and Japan are still battling the virus. Although South Korea appears to have flattened the curve, life is only gradually returning to normal.
Some social distancing policies remain in place and factories are re-opening at cautious levels.
Japan is at a far earlier point in its own outbreak. But curiously it is using a carrot rather than a stick approach.
The Tokyo municipal government is paying businesses to comply with new measures, promising between $7,000 and $15,000 for businesses that comply.
Last year South Korea and Japan imported 53 million tonnes of coking coal, which is nearly 30 per cent of Australia’s imports.
Coking coal is primarily used to make the steel that goes into construction and car manufacturing. And Japan in particular is a world leader in car manufacturing, making steel an important product for the country.
But Bloomberg Intelligence analyst Michelle Leung expects demand for coking coal to plunge, not just because of falling demand but also because of a large stockpile.
Back in February, when the crisis was in its infancy in Japan, the country’s domestic steel inventory rate — inventory compared with monthly shipments — was 176 per cent.
Leung warned that crude steel production in Japan may fall by up to 26 per cent — which would be an 11-year low.
For South Korea, a country at a later stage in the crisis, crude steel output for January and February fell 3.1 per cent.
Leung pointed to major miners like BHP (ASX:BHP) and London listed Glencore (LSE:GLEN) as stocks that would bear the brunt of this.