China underpins coking coal exports

CHINA is pushing Australia’s metallurgical coal export volumes back towards 2008 levels, according to Macquarie Research analysts, who also expect “massive” Chinese coking coal import figures to show up in trade data for June.
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Blair Price

Macquarie analysts noted that recent export figures were showing record China-bound exports heading out of Australia in May.

“Australian export data suggests that China could import metallurgical coal at a rate of more than 45 million tonnes per annum (more than 3.8Mt) in June,” Macquarie said in a commodities report.

“Chinese demand is pushing Australian metallurgical coal exports toward year-ago levels, keeping the market tight as the rest of the world starts to pick up and prices surge above contract levels.

“We expect Chinese metallurgical coal demand to remain strong as pig iron production continues to grow and domestic mine restarts remain relatively modest.”

The analysts cited Australia’s May trade statistics, which had exports of 7.1Mt of hard coking coal and 4.1Mt of both semi-soft coking coal and pulverised coal injection coal.

“Metallurgical coal exports were running at an annualised rate of 131Mt, the highest rate since October 2008, 11 per cent higher month-on-month, and compared to total exports of 135Mt in 2008,” Macquarie said.

While noting the available spare mining capacity in Queensland from BHP Billiton Mitsubishi Alliance and Xstrata Coal, which suspended production from its Oaky No.1 longwall mine early this year, Macquarie also sees supply constraints.

“Australia’s ability to export at a significantly higher rate is questionable in the short term.

“Shipping queues are long, with over 40 vessels at anchor off Dalrymple Bay/Hay Point. There is also a heavy maintenance schedule coming up at these ports in July-August, which should limit shipping growth.

“Semi-soft and PCI shipments have also recovered strongly on Chinese demand.”

Overall, Macquarie said China continued to be the principal driver of this recovery.

“Around 35 per cent of Australia’s metallurgical coal exports in May were destined for China, against zero in May 2008.”

The unexpected demand from China – a result of the country’s safety crackdown on small mines – offset the weaker demand elsewhere, the investment bank said, including a 26% drop in exports to Japan, 67% drop to South Korea and 67% drop to Taiwan for May compared to May 2008.

“Year-to-date, China has taken 23 per cent of Australia’s metallurgical coal exports, up 10Mt on 2008, while exports to other destinations are down 18Mt.”

The analysts also attributed some of the gains to specific companies.

Looking at Chinese customs data for April and May, Macquarie said the 979,000t of anthracite imports from Australia were really PCI coal and were consistent with Macarthur Coal’s recently upgraded sales guidance.

“Spot coking coal prices have risen recently to above contract levels, with volumes traded at more than $US135/t free on board Australia. Chinese demand has led Macarthur Coal, Teck Cominco, Grande Cache Coal and Western Canadian Coal to upgrade sales guidance for this year.”

Macquarie expects a small lift in China’s domestic coking coal production for the second half of 2009, but said pressure on local officials to keep miners safe would remain acute, especially in October during the 60th anniversary celebrations of the communist government.