China's domestic, import coking coal prices in tandem
Seaborne premium hard coking coal prices have increasingly fallen into a pattern of moving with domestic prices in China, as the country solidifies its position as the expected destination for available spot cargoes through to the end of the year.
As November-loading premium cargoes emerged from Australian producers for delivery near the end of the year, buying interest from Chinese mills lifted premium low-volatile cfr China prices as high as $167/t from $155.25/t on 1 October. But this increase was short-lived, driven mainly by momentarily relaxed import controls at northeast Chinese ports because of leftover import quotas nearing the end of the calendar year. Restrictions in northeast China were said to be one of the strictest for most of the year.
Prices reversed again just less than two weeks after the end of the national day week-long holidays at the start of October, as a cargo of Saraji traded at $164-165/t cfr compared with a similar cargo traded at $167/t cfr just a week ago.
Spot prices of Australian coking coal into China have been consistently below $170/t cfr China since mid-August as the lack of returning Indian demand after the June-September monsoon season resulted in a surplus of premium mid-volatile cargoes in the spot market.
Muted spot demand from across Europe, India and southeast Asia promoted China to the role of clearing house for any surplus volumes in the seaborne market. Not only has the fob Australia/cfr China spread reverted to roughly a freight netback, but cfr China price changes have recently mirrored the dips in the domestic market as Chinese steel mills maintain a value comparison between the two markets.
Domestic premium low-volatile coking coal prices were assessed by Argus at $225.27/t on an ex-mine basis on 1 October, but have since dropped to $203.47/t as Chinese mines saw production and coal transportation facilities improve and stabilising supplies. This 10pc drop preceded a drop in premium import prices to $162.90/t cfr China yesterday from $167/t at the end of last week as deals were done at consecutively lower levels for the same brands.
These buyers have shown a lack of willingness to pay beyond a roughly $40/t spread between premium low-volatile imports and similar domestic grades because of the risks and administrative troubles involved in getting coal imports past China's increasingly hawkish customs officials.
Chinese buyers and trading firms are deriving similar calculations when choosing to take seaborne cargoes on a fob Australia basis. Argus last assessed premium low-volatile at $149/t fob Australia, which nearly reflects a freight netback from yesterday's cfr China price of $162.90/t at current Panamax freight rates from Hay Point, Queensland to Qingdao, China of $13.80/t.
source: Argus Media
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