Is this what winning a trade war looks like?

Premium Low Vol CFR China – a benchmark for Chinese coking coal imports — hit an all-time high of $US410/t Wednesday.

That’s a 248% increase over the past year.

The previous high was $US392.50/t in January 2011, after cyclone Yasi devastated the coal-producing region of Queensland.

The root cause of the price rally is the unofficial ban on Australian coal since late last year, compounded by the closure of the border with Mongolia on Monday.

Australia and Mongolia have been China’s top sources of imported coking coal for many years, according to S&P Global.

“Chinese domestic coking coal supply was also tightened in 2021 due to environmental campaigns and safety checks at mines imposed by local governments across various Chinese provinces,” it says.

“As a result of this tightness, China’s domestic prices soared in recent month, and in recent weeks have been higher than imported prices, creating an arbitrage window.”

Who benefits from the rally in coking coal prices?

Any producer not in Australia or Mongolia – although the Aussie guys are still doing well right now.

China’s unofficial ban on Australian coal late last year has resulted in a divergence between the two trade-flows, with Aussie prices being over $US170/t lower.

“Australian export prices have also been rising but nowhere near as fast as Chinese imports,” S&P says.

“Premium Low Vol FOB Australia rose $1/mt on-day Wednesday to $US232/t.”

The price rally will benefit North American and Russian producers, as well as smaller exporters such as Indonesia, Mozambique, and Colombia.

“With Australia and Mongolia out of the picture and domestic prices skyrocketing, Chinese steelmakers have no option but to look to Russia, Canada and the US as the next-best option to source their coking coal,” says Julien Hall, regional metals pricing director at S&P Global Platts.

“International prices are being driven upwards by red hot Chinese domestic prices.”

“The rally there is continuing this week, which suggests that seaborne prices could continue to trend higher.”