Canadian mining firm Teck Resources does not expect China's recent import restrictions on Australian coal to have a significant effect on global trade flows, with Australian supply likely to be flat for 2020 and any near-term Chinese coal shortage covered by domestic inventories or Mongolian supplies.
But the company says it has increased sales to China as a result of recent developments. "We are starting to see a few sales to China above original expectations, and that is coinciding well with our operations ramping up through the quarter," said senior
vice-president of marketing and logistics, Real Foley.
Two cargoes of Teck's Elkview coking coal for December-loading were heard sold to two separate Chinese steel mills today at $135-137/t cfr China.
But the miner still does not expect a marked change to trade flows in the longer term. "The first thing I guess to say is there has been no official announcement on those restrictions," Foley added.
Despite a number of Australian cargoes being offered for resale over the past two weeks, pushing down the Argus-assessed Australian premium low-volatile coking coal price to $111.80/t today from $136/t fob Australia at the start of October, it remains unclear whether any diversions or potential cargo swaps with US suppliers will materialise.
Vessel queues involving 5.5mn-6mn t of coal that may take up to one-and-a-half months to process have been reported by market participants. "We have not seen any Australian cargoes that are waiting at Chinese ports being diverted to other ports," said Foley, "It's quite difficult to resell some of those cargoes as the loss would be quite large on top of the extra cost to the coal."
Teck estimates Chinese coking coal inventories at 45mn-50mn t, equivalent to around four weeks of supply given Chinese mills' consumption rate.
While imports of Australian coal are restricted, Mongolia is expected to seek to recover export losses from the early months of the Covid-19 outbreak, when China's border was closed, said Foley. He also believes that Chinese port quotas will reset at the beginning of 2021 — in line with wider market expectations — allowing Australian shipments to resume.
Third-quarter production
Teck's third-quarter coking coal output fell by 22pc on the year to 5.1mn t, as it continued to carry out planned mining and production outages to correspond with reduced demand related to the pandemic. And its production in January-September fell by 25.8pc on the year to 15.1mn t because of coronavirus-related disruptions to operations.
The company's production guidance for the second half of this year stands at 11mn-12mn t. It expects sales of 5.8mn-6.2mn t in the fourth quarter and to maintain annual production of 26mn-27mn t at lower production costs of C$60-64/t ($45-48/t).
Teck's third-quarter coking coal sales by fell 15.5pc on the year to 15.8mn t, while the average price of these sales slipped to $102/from $156/t. Covid-19 continued to affect demand in the quarter, but a number of steel producers outside China that had deferred purchases to manage inventory levels started restocking in preparation for blast furnace restarts and higher steel production in the fourth quarter, the firm said.
Teck's production cost was C$67/t in July-September, unchanged from the same period of 2019, but its transportation costs rose to C$43/t from C$39/t because of reduced shipments through Neptune Bulk Terminals during a five-month planned shutdown that ended in September. But the miner expects costs to fall below C$60/t by December thanks to plans to reduce strip ratios, the completion of the Elkview plant expansion earlier this year and the closure of the higher cost Cardinal River operations.
