What does China's thermal coal import restriction mean for Australian producers?

Rumours of a ban on Australian thermal coal to China have surfaced in the thermal coal market this week. In an NDRC meeting last week, Five major state-owned utilities were said to have been directed to stop buying new cargoes of Australian thermal coal from 15 May. The restriction is targeted at stemming the flow of surging imports into China, in a bid to boost domestic prices. Chinese imports this year are annualising almost 75 million tonnes higher than last year.

Wood Mackenzie principal analyst Rory Simington said: "While there is much uncertainty around the potential ban, we think it is unlikely to have a major impact on the market. Thermal coal imports into China have been subjected to numerous restrictions, quotas and import bans in recent years. However the actual impact on trade has been comparatively minor.

"Since March 2019, many Chinese ports have implemented changes to clearance procedures for Australian thermal coal. These changes include limiting discharge to daylight hours and radioactivity tests for each 500 tonnes of coal unloaded, which resulted in extending clearance times for customs to up to 60 days. While Australian imports increased in 2018 they were flat in 2019 and in the first quarter of 2020, despite the overall surge in imports. So clearly the measures targeting Australian coal have had an impact.

"The reason the trade has been so resilient in recent years is due to the competitiveness of imported coal and Australian imported material in particular. A spot price of 500 RMB/tonne FOB QHD for 5500 nar coal nets back to a Newcastle price of US$57/tonne. With the current high ash spot price at US$45/tonne FOB Newcastle, Chinese buyers enjoy an arbitrage of over US$10/tonne for Australian coal."