Surging exports to China

GOLDMAN Sachs JBWere is expecting strong Chinese demand for Australian coking coal to prop up exports and keep a floor on the price.
Surging exports to China Surging exports to China Surging exports to China Surging exports to China Surging exports to China

Hay Point Coal terminal. Courtesy BHP Billiton Mitsubishi Alliance.

Blair Price

Chinese demand comes at a time when most buyers from other nations are cutting back amid the steel market slump.

A trading report this week from the Australian arm of the Wall Street bank, GSJBW has forecast Australian coking coal exports to China will jump to 6 million tonnes this year compared to 1.4Mt in 2008.

The investment bank also forecast total Chinese coking coal imports to rise to 12Mt this year compared to 6.9Mt last year.

“Chinese supply of domestically produced coking coal remains tight as mines in Shanxi province have yet to recoup lost production from the winter shutdowns which were compounded this year by local government clampdowns on unacceptable health and safety standards across the small mine sector,” GSJBW said.

“The small mines in Shanxi account for a disproportionately large share of China’s hard coking coal supply, hence the need to supplement local supply with imported coking coal.”

The bank added the safety-induced impacts to China’s small mines production came at a time when Chinese coke ovens had been running ahead of blast furnace output, with Australian suppliers the main beneficiary as its coking coal was competitively priced at Chinese ports to the domestic market.

GSJBW also noted the squeeze on domestic supply coincided with reduced shipments from Mongolia, seen as the typical source of China’s coking coal, because of seasonal and logistical reasons.

Expecting weather and logistics to improve in the second half, GSJBW said the usual resumption of Mongolian shipments to China should moderate its imports of Australian coking coal as the year progresses.

“We remain unconvinced by suggestions from some industry participants that Chinese imports of coking coal could surge above 20 million tonnes this year,” the bank said.

GSJBW said the main risks to this view was stronger than expected Chinese steel production and lower than expected domestic supply in the nation.

The bank has kept its 2010-11 contract price forecast of $US120 a tonne for hard coking coal.

While providing its coking coal outlook, GSJBW noted there were similar trends in thermal coal and iron ore markets where Chinese demand cushioned these commodities amid the reduced demand from other nations.

The Chinese government was forced to change coal mining regulations after an underground gas explosion at the Tunlan Colliery in northern Shanxi Province killed 78 people and injured 114 in February, receiving considerable media attention around the world.

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