China's import restrictions on Australian coal have started to slash coal deliveries from key suppliers in New South Wales and Queensland. This, coupled with tighter overall import quotas, reduced China's thermal coal intake in August.
Australian thermal coal shipments to China were 4.09mn t in July, a sharp fall of 34pc from July 2019, customs data show. All Australian deliveries were of non-coking bituminous coal.
The increase in July deliveries from Australia reversed the strong year-on-year rises in most of the previous months this year. June shipments rose by 30pc on the year to 5.1mn t and April imports more than doubled on the year to 6.31mn t.
The decline in Australian shipments contributed to a 26pc year-on-year fall in China's overall thermal coal imports from all destinations in July to 18.04mn t.
Beijing started to prolong the clearing of Australian coal through customs from last year to at least 40 days compared with 10 days previously. Beijing also took the harsh line of forbidding major state-controlled utilities from buying Australian coal in May as China-Australia political relations worsened.
Weak demand from Chinese buyers kept pushing Australian coal prices lower. The price of NAR 5,500kcal/kg coal registered two straight week-on-week rises to $37.30/t fob Newcastle on 17 July, before falling consecutively week-on-week to $35.18/t on 28 August, according to Argus assessments.
Several Chinese traders continued to book Australian cargoes despite the uncertainty of acceptance at Chinese ports, to benefit from the low prices. A Panamax cargo of NAR 5,500kcal/kg coal was sold last week to a Chinese trader at $35-35.50/t fob Newcastle for September loading. This price was around Yn214-218/t lower than domestic Chinese coal of the same calorific value (CV), accounting for port charges, freight rates and value-added tax.
Import quota expires
Expiring overall import quotas at China's ports, in addition to informal political measures curbing the clearance of Australian coal, have also reduced China's intake from other countries. Indonesia, China's biggest coal supplier, delivered 10.58mn t of coal in July, a fall of 25pc from July last year. Indonesian shipments of bituminous coal, sub-bituminous coal and lignite to China fell by 9pc, 8pc and 34pc on the year to 1.34mn t, 3.27mn t and 5.97mn t last month, respectively.
Russian thermal coal exports to China slipped to 2.12mn t last month from 2.71mn t a year earlier. Year-on-year declines of 34pc and 54pc in bituminous and sub-bituminous coal intakes outweighed a rise of 17pc in lignite, leading to the lower overall thermal coal deliveries. Imports of lignite, bituminous coal and sub-bituminous coal were 948,000t, 1.02mn t and 160,000t respectively in July.
China's imports are likely to slow over the rest of this year on tighter quotas. But traders are hoping to sell November and December loading cargoes to Chinese buyers on expectations that curbs will be lifted once the quota system rolls into 2021.
The possibility of new quota allocations for 2020 are widely discussed, especially since additional quotas were thought to have been allocated to three northeast Chinese provinces of Heilongjiang, Jilin and Liaoning around mid-August, to cope with an expected winter domestic supply shortage. Traders are hoping to make use of the new quotas once they are released.