The return of China as an outlet for US coking coal has brought some much needed light to US mining firms that survived a difficult fourth quarter of mine closures, Chapter 11 filings and output cuts carried out to tackle high inventories and a lacklustre European market.
A number of US mining firms have been in discussions with Chinese buyers since February and cargoes have already shipped or are loading for April deliveries.
The initial approvals for tariff exemptions have been granted to at least two Chinese mills within days of 2 March, the date given by Beijing for the start of these exemptions. But trading companies are anticipating a longer wait for their approvals.
At the end of February, Chinese buyers secured two April-loading Panamax cargoes of Coronado's Buchanan coal through a US trader and in the first week of March an offer for US semi-hard coking coal was made at about $159/t cfr China, inclusive of a 3pc tariff. While this offer has fallen from above $160/t cfr last week, enquiries for US cargoes in China have increased amid growing confidence that more approvals will be granted. Further discussions are under way for additional deliveries in the second quarter, mining firms said.
Return of China
Some mining firms have been more cautious in celebrating the return of Chinese interest, citing the short-term nature of recent supply disruptions in Australia, Mongolia and China.
But others are expecting a shift in trade flows, and even competition for Indian steel mills that have regularly relied on US high and mid-volatile coals in their blends. Some Indian buyers in the market for April-loading cargoes are already starting to voice their concerns over the possibility of Chinese demand pushing up US prices, traders said.
US coking coal exports to India fell by 23.75pc in 2019 following the longest monsoon season in 60 years but imports in the second half of 2019 were up by 7.83pc year on year to 1.94mn t, and there is potential for a further increase as the Indian government plans to triple steel output to 300mn t/yr by 2031.
"It is physically impossible for China to hit its commitment on just oil and LNG alone – it will have to also purchase US coking coal," one mining firm said. In January, China committed to purchasing significant amounts of commodities such as crude, natural gas, coal and LPG from the US under the "phase one" trade deal. The target for energy purchases has been set at $52.4bn, comprising $18.5bn of additional imports in the first year and $33.9bn in 2021.
A US mining firm that had been in talks with Chinese buyers before the introduction of China's tariffs in August 2018 is confident that it will start shipping to China. Its customers are already in the process of securing tariff exemptions.
In the first full year following the introduction of tariffs, US exports to China fell to 1.06mn t in 2019, down by 45.6pc on the year. But 2017's exports of 2.7mn t points to the potential for sales to China to increase significantly.
Cost advantage remains
While US coals shipping to China are disadvantaged by higher freight costs compared with their Australian counterparts, the lack of demand in Europe has meant that US mining firms, particularly the low-cost operators, are willing to accept the differential to continue shifting volumes. Low freight rates for most of this quarter has added to the allure of US coals to China. But Panamax rates have rallied late this week as fixtures start to pick up.
The competitive prices of US coals can make US to China freight costs more palatable to Chinese buyers. Ahead of any significant trade to China, US coking coal prices are still slow to catch up with Australian prices that have been rising consistently since January. The Argus daily assessed US high-volatile type A stood at $140.50/t fob Hampton Roads on 5 March, having recovered from $128.25/t in December, but still down from $211/t at the start of January last year. The premium low-volatile fob Australia price stood at $162/t on 5 March, recovering from $128.50/t in September, after starting 2019 at $216.50/t.
