• China may lift ban on Australian coal
  • Some utilities reportedly given go ahead to make purchases
  • Premium hard coking coal remains highly sought after

China is reported to be considering a lifting of its ban on coal imports from Australia which has been in place since 2020 as relations between the two countries thaw following the election of a Labor government in May last year.

At least one report indicated that three central government-backed China utilities and a top steelmaker have been given the go ahead to purchase Australian coal for their own use, which will represent a partial easing of its biggest sanction against Australia.

Fastmarkets quoted a trading source in Singapore as saying that such a development would cause a major supply swing and disrupt trade flows, though the impact on pricing isn’t entirely clear as yet.

Speaking to Stockhead, Fastmarkets Asia ferrous editor Paul Lim said that Australian prime hard coking coal is a highly sought after product due to its low-sulphur, low-ash qualities, which are not common in domestic China.

“Hence, the lifting of the ban on Australian coal will be beneficial for Australian miners producing prime hard coking coals, and they should expect to see demand increase from China,” he noted.

“The spread between prime hard low-volatility (PLV) and prime hard mid-volatility (PMV) coals should also increase again, as China prefers PLV coals to blend with their domestic coals, so this will likely cause PLV prices to be at a premium to PMV, unless Indian buyers are looking to buy PMV. India typically prefers PMV coals.”

As such Lim expects prices to remain high or possibly increase (as it already has in the past weeks) as traders and buyers price in the anticipated Chinese demand, and bid higher to secure cargoes.

“However, this depends on other factors, such as Chinese downstream blast furnace operating rates, coking margins, steelmaking margins and supply of other coals from Mongolia, Russia, Indonesia,” he added.

“Mongolian coals can still be used as hard coking coals once washed of ash, while Russian coals are mainly used for PCI purposes. Indonesian coals are mainly used for blending, although there are some brands of hard coking coals shipped to China.”

Lim also pointed out that Russian and Mongolian coals face an extra 3% import duty that China had imposed on non-Australian and Indonesian coals.

 

Time for change to flow through to coal

Bloomberg added that with Australian exporters having already switched their focus to other markets in Asia and Europe, any gains from a lifting of the Chinese ban will take some time to flow through.

However, National Australia Bank head of currency strategy Ray Attrill agreed that China’s return as a buyer of high-quality Australian coal could help spur prices higher.

Despite the news, Australian coal shares slipped today after posting gains yesterday.

New Hope (ASX:NHC) fell 0.51% to $5.88 while Whitehaven Coal (ASX:WHC) dropped 2.19% to $8.92.

Yancoal (ASX:YAL) marked a miniscule 0.17% drop to $5.77 while metallurgical coal miner Coronado (ASX:CRN) dipped 0.39% to $1.928.

Stanmore Resources (ASX:SMR) bucked the trend, picking up a 1.72% gain to $2.96.

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