• Rumours China will reverse ban on Aussie coal intensify
  • Coal researcher Toby Hassall says move could benefit both Chinese steel mills and Aussie miners
  • Australian coking coal has slipped in recent weeks and is now trading at a big discount to Chinese domestic met coal

The relaxation of China’s ban on Australian coal is just in the rumour file for now.

But word that it could happen in the wake of a thawing of diplomatic relations between the countries, reversing trade bans that had also seen Australian wine, lobster and barley effectively locked out of the Chinese market, is getting stronger.

Bloomberg last night reported sources saying that the proposal was being seriously considered by bureaucrats within the Chinese Communist Party, anxious that curbs on Russian energy will increase competition for the limited sources of coal Chinese companies can import.

But experts say it will likely be the metallurgical coal market that gets the biggest shot in the arm from the redrawing of the trade relationship.

It comes on the back of a massive drop in Australian coking coal prices over the past couple of months.

That has seen an unusual situation emerge where 6000kcal low vol thermal coal from Newcastle, typically a lower value product, is now trading for US$416/t against around US$250/t for Australian premium hard coking coal.


Chinese steel mills to benefit from restart of trade

While it was fetching a record ~US$670/t in the wake of Russia’s invasion of Ukraine in March, Australian coking coal is now trading at a major discount to domestic coal in China and Russian coking coal.

The high price of the commodity, used in the reduction process of iron ore to crude steel, has been a major factor in the fragility of China’s 1Bt a year steel sector’s recent fall into negative margins as steel prices have been crimped by weak demand after China’s Covid lockdowns.

That has prompted numerous steelmakers to shift to maintenance to stem losses, raising concerns about China’s economic growth that have reverberated across the world and commodity complex.

Toby Hassall, lead analyst of coal market research at Refinitiv, says China’s steelmakers would welcome the opportunity to bid on Australia’s lower priced coal cargos.

“There have been some dynamics in the coal markets recently that have led to a situation where there are reasons why China would be interested in again having access to Australian coal,” he told Stockhead.

“When we compare the price of China’s domestic coking coal to high grade coking coal with the price of a comparable Russian coking coal, and then also with a comparable Australian product, what we’ve seen with some very sharp declines in the Australian coking coal price is that now that product, even on a delivered basis into China, is considerably cheaper than both China’s domestic coking coal and also Russian coking coal.

“So there’s a big cost saving that China’s end users can can potentially take advantage of if access to Australian coal was was enabled again.”


Markets move fast

There could be common ground for Australian coking coal producers who have seen demand drop sharply from ex-China customers in recent weeks.

Chinese buyers may be incentivised to pay higher prices because of the gulf between Australian met coal and domestic prices.

That would create more competition for Australian coal cargoes.

“In the short term sometimes there can be limited supply available due to the fact that some proportion of production is often sold on a contract basis,” Hassall said.

“So I guess when we talk about what’s available in the spot market, it sometimes can be hard to accurately assess the volume that is available in the spot market at any point in time.

“But with that price differential you’d certainly be looking at Chinese buyers who can bid strongly into the market, potentially attracting cargoes from destinations they otherwise would have gone to, and yet still achieve cost savings relative to China’s domestic coking coal or Russian coking coal.”

While some analysts think it will take a while for the market to adjust and bans to actually be unwound, Hassall says market flows can shift very quickly, as they did when Australian coal was first banned from its main export market.


Coal stocks fail to fire

The heat came out of most of the ASX-listed coal stocks today as markets failed to fire.

Bowen Coking Coal (ASX:BCB) and Yancoal (ASX:YAL) were the only coal stocks in the green after yesterday’s excitement.

Energy dropped 0.48%, though not as severely as the materials sector, which finished with a 3.21% drop led by the big iron ore miners, who were hammered by falling commodity prices.


ASX coal stocks share prices today: