Major coal producers in China have pushed back against buyers' demands for price cuts next year, opting instead to keep prices unchanged in provisional 2020 contracts.
The producers mine a range of thermal and coking coals, including low-sulphur coking coal and equivalent grades of low-volatile premium hard coking coal.
Downstream consumers were unhappy with the outcome, with most of them having expected a price drop of at least 50-100 yuan/t ($7.10-14.20/t), said attendees of the contract negotiations and signing ceremony held in Nanning, Guangxi province, over the past week.
"Production at domestic mines this year has been generally stable and high, and spot prices have fallen by a total of about Yn50-70/t, particularly over the second half of 2019," a Beijing-based coal trader, who was in attendance, said. "So most buyers were expecting that to carry over to contract prices."
But another participant at the ceremony stressed that contract prices will be reviewed again during the first quarter of 2020, as that is when the full impact of enhanced safety checks is expected to become clearer.
Two coal mine accidents have occurred this week alone, one in Shanxi province and the other in Shandong province. Market participants expect the government to tighten safety checks, in response to these incidents. No mines have so far been ordered to halt production, preventing any significant effect on supply. For this reason, coal producers prefer to fix the price at a later date.
"Some special arrangements exist," a Singapore-based trader said. "Although the contract prices are kept stable on paper some preferential discounts may be extended to buyers, for instance, when they buy a minimum volume of coal from a certain producer," the trader said. So, some customers may already be getting unofficial price drops in contracts.
Should the domestic contract prices hold at current levels, Chinese steel and coke producers could increasingly turn to imports of coking coal next year, especially with seaborne prices at a three-year low, last assessed at $143.75/t cfr China. Domestic low-sulphur coking coal prices are currently about $30-40/t higher.
This might offer some hope to international coal producers, amid continuing weak expectations for the steel markets in Europe, India, Japan and South Korea. Many ex-China steel producers are heard to have trimmed their long-term contract volumes with major producers as their margins get increasingly squeezed and more attention is paid to costs.
By Rou Urn Lee
