According to Reuters article published on April 17, 2023, Australia may become the swing supplier of coal to China after the world's biggest importer of the fuel ended its unofficial ban on imports from the world's second-biggest shipper.
China's coal imports leapt to a three-year high in March, with official data showing arrivals of 41.17 million tonnes, up 151% from the same month in 2022.
First-quarter imports were 101.8 million tonnes, almost double the same period last year, as demand for the fuel used to generate power and make steel increased as China reopened its economy after ending its strict zero-COVID policy in December.
While the preliminary customs figures released on April 13 do not give a breakdown by origin country or by grade of coal, data compiled by commodity analysts Kpler showed a surge in imports from Australia.
China's coal imports from Australia were 2.73 million tonnes, with 2.13 million assessed as the thermal grade used in power plants, with 417,576 tonnes being coking coal used to make steel.
A further 184,179 tonnes of imports were not classified by Kpler as either thermal or coking.
The March imports built on arrivals from Australia in February of 910,921 tonnes, of which 740,536 tonnes were assessed as thermal and 110,181 as coking.
The March imports were the most from Australia since November 2020's 2.64 million tonnes, which marked the last month of imports of any significance after Beijing imposed an informal ban on Australian coal in mid-2020 as part of a political dispute with Canberra.
Prior to the ban, Australia was China's second-largest supplier of coal behind Indonesia, with monthly imports typically ranging between 7 million and 10 million tonnes.
The ban was lifted this year and it appears that Chinese utilities have been buying Australian cargoes when arbitrage pricing makes economic sense.
Chinese utilities used to be major buyers of Australian thermal coal with an energy content of 5,500 kilocalories per kg (kcal/kg).
This grade contains more energy than coal typically supplied by Indonesia but is also below the 6,000 kcal/kg fuel preferred by other major north Asian importers such as Japan and South Korea.
In recent weeks it has likely made economic sense for China to buy Australian 5,500 kcal/kg coal as it is competitively priced against domestic supplies.
Australian 5,500 kcal/kg coal at Newcastle port , as assessed by commodity price reporting agency Argus, ended at $116.65 a tonne in the week to April 14, the lowest since January 2022 and down 59% from the record high of $284.20, reached in early March last year after Russia's invasion of Ukraine.
Similar grade coal at the northern China hub of Qinhuangdao , as assessed by SteelHome, ended last week at 1,010 yuan ($146.80) a tonne.
Even allowing for freight costs and customs duty, it's likely that Australian thermal coal is competitive with domestic supplies, and more importantly is likely to be more readily available to buyers than domestic supplies, which have to meet power station requirements first.
This advantage is driving Chinese buying of Australian coal, with Kpler estimating that arrivals in April will reach 5.04 million tonnes, with thermal coal accounting for 4.72 million tonnes.
TREND OR OPPORTUNISTIC?
The question for the seaborne coal market is whether China's renewed interest in Australian coal is a sustainable trend, or whether it is simply opportunistic buying that will wither if the price advantage slips.
It's unlikely that Australian coal is displacing cargoes from other shippers, as it has a different buyer profile to coal from Indonesia, which is typically imported by southern Chinese utilities and blended with domestic supplies.
Australian thermal coal can compete in China with cargoes from Russia, the United States and South Africa, but the last two are relatively minor suppliers.
China's seaborne imports from Russia have remained elevated since the invasion of Ukraine forced Russian suppliers to seek new markets and discount cargoes.
China imported 5.83 million tonnes from Russia in March, and imports have ranged between 4.1 million and 6.7 million since April last year.
This means that Australian thermal coal imports by China are likely to be driven by the price of domestic supplies, which in turn are subject to more than demand and supply fundamentals, given that Beijing has stepped in to control prices.
The opinions expressed here are those of the author, a columnist for Reuters.
