China customs maintains restrictions on coal imports

This year's coal import quota will not be extended to February 2019 as some market participants expected, but customs will maintain restrictions at south China ports for the rest of this year and step up restrictions at north China ports.

The strictest controls on coal imports have previously been placed on south China ports, as the coastal steel producers and power plants import the largest amount of coal. China's coal imports have risen by 11pc to 252.04mn t during January-October, according to customs data. But importers face a quota set to no more than the 2017 total of 270.9mn t. Coking coal accounted for 70mn t of the 2017 total.

The general administration of customs stressed during meetings yesterday in various Chinese provinces that strict controls will have to be maintained because there is just 9mn t of coal import quotas remaining for all Chinese ports this year.

Participants in the coking coal market have stressed that these import restrictions are aimed towards limiting thermal coal imports so that domestic thermal coal prices do not come off too much. But since Chinese customs do not differentiate between thermal and coking coal imports, any restrictions on coal imports will have a ripple effect on coking coal.

Officials from China's main economic planning agency the NDRC at the meetings yesterday dismissed as untrue earlier discussions about a complete ban on all coal imports, saying existing policies on coal imports are unchanged.

North China sees delays

Restrictions at north China ports have been slowly coming up before meetings yesterday, market participants said. There is no outright ban on coal imports, but vessels have begun to see extended waiting times to berth and to clear customs inspections. The delays are aimed at discouraging coal imports by making it more difficult for buyers.

In some ways, power plants are expected to have some leeway in maneuvering through restrictions.

"Should a utility really need to import a cargo of thermal coal for instance, customs will allow them to do so but on a case-by-case basis, depending on the actual demand and needs of the utility in question," an attendee at one of the meetings said. "But the authorities' stand on coking coal is clearly a negative, coking coal is not an essential commodity in their eyes."

The changes will have the biggest impact at Jingtang port in Hebei province, which until now remained one of the few ports that trading firms could berth and unload coking coal cargoes with little limits. Portside coking coal trades at Jingtang port have been active over the past month, driven by high seaborne cargo offers and long waiting times to berth vessels shifting buyers to portside markets.

"We heard that Jingtang port will temporarily only allow locally registered companies to declare their cargoes to customs. Companies registered in other cities will not be allowed to declare cargoes," a Beijing-based trader said. "There is also talk of Jingtang port possibly further tightening their policies on coal imports soon."

"We do not expect these enhanced restrictions to change our procurement strategy much," a south China steel producer said. "At the very most we will just put off procuring December-loading cargoes until the situation becomes clearer."

December cargoes affected

North China steel producers that previously had intentions to import premium low-volatile hard coking coals might have to postpone these plans.

Prior to the meetings, some Chinese steel producers had planned to buy top-tier seaborne coking coal cargoes loading in December, in anticipation of port import quotas being reset at the end of the calendar year. With about 20 days required for cargoes to reach China from Australia, any cargoes loaded in December will arrive in China just after the start of the 2019 when there is more than sufficient quota volumes.

But steel producers are apprehensive as they are now poised to lose an important alternative source of coking coal.

"We do not import much seaborne coal, but the quality of Australian coking coal is virtually unmatched," the same south China steel producer said. "We have complained to the authorities that we might face problems producing if we are barred from importing coal, but their response is simply for us to buy up the remaining domestic coking coal inventories from north China ports."

"The quality of domestic coking coal quality can never match that of Australia," he added. "Domestic coals are simply too high in sulphur and phosphorus for us to use them without flouting environmental protection rules. We are being squeezed from both sides."

"We have two more imported coking coal cargoes that will arrive by the end of this year, so we're currently liaising with customs to see how we can manage the situation," a north China steel producer said. "But we're not too worried as we have enough inventories."