Australian coal finally lands in oversupplied Chinese market

Australian coal is finally flowing to China, opening up another avenue for shipments in what’s shaping up as an increasingly oversupplied market this year. 

Some 207,000 tons arrived in China in February, including 73,000 tons of the higher-grade coking coal prized by steel mills, according to customs data. Although the total is just a sliver of China’s massive import haul of over 60 million tons so far this year, they’re Australia’s first new cargoes since Beijing imposed its unofficial ban in late 2020 after relations with Canberra soured.

Before the halt, Australia was China’s No. 2 overseas supplier after Indonesia. But that ranking has since been taken by Russia, which has seen its sales to China boom after other buyers shunned its product due to the invasion of Ukraine. Now, Australia is back in the mix, with imports that could rise to 20 million tons this year, according to one industry estimate.

Steelmakers in particular are likely to be glad of the extra supply after Mongolia, another key miner of coking coal, launched a new auction system that raised prices for Chinese buyers, according to industry news portal Yulin Coal Web.

But at the same time, China is mining record quantities of the fuel as it prioritizes energy security after a string of power outages in recent years. Output in the first two months climbed to 734 million tons. Including imports, Fengkuang Coal Logistics estimates that China had about 65 million tons of additional coal in the first two months compared to last year.

The extra supply is doubtless designed to feed the reopening of China’s economy after three years of Covid Zero restrictions. But Beijing’s modest growth targets, as well as plans to curtail steel output, suggest the fuel has been secured out of an abundance of caution that could end up pressuring prices, limiting any windfall to Australia’s miners. 

© 2023 Bloomberg L.P.

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