Amid China vacuum, Australian coal finds new homes in India, Japan

For Australian coal, which has faced restrictions in the Chinese market since late 2020, new windows of opportunities have opened up. Many other Asian markets – such as India, Japan, South Korea and Taiwan – have witnessed sharp rises in Australian coal inflows.

China imposed the unofficial ban on Australian coal in November 2020 after the island-nation supported calls for an international investigation into China's handling of the coronavirus outbreak earlier in the year.

Soon after the ban was imposed, Australia's energy quarterly review said that it was weighing on Australian producers' sentiment and would impact price of the 5,500 kcal/kg NAR coal.

But Australian coal sellers were able to find alternative markets.

"The main grade of Australian coal exports to China were the sub-bituminous mid-CV high ash coal. Australian producers have been able to cushion any impact of the trade dispute by diversifying their export customer base," said Matthew Boyle, global coal markets senior analyst at S&P Global Platts Analytics.

Alternative markets to China, such as India, required a lower ash product, whereas Northeast Asia customers needed higher CV coal, Boyle added.

While the restrictions from China have changed the trade flow map for Australian coal in a big way, they have not made a major dent on overall volumes. Platts Analytics expects Australia's thermal coal exports in 2021 to fall only 2.7% year on year to 198.2 million mt, and is expected to dip 1.1% year on year to 196 million in 2022.

Australia ground in India

India has turned out to be a favorite destination for Australian coal.

Shipments from Australia to India have grown five-fold in the first three quarters of 2021, rising 503% year on year, to 16.5 million mt in the January-September period, according to data by Iman Resources.

The multi-fold growth in Australian coal inflows have come despite India's overall imports in declining 1.18% in January to September, versus the same period in 2020, according to Iman Resources, after Indian buyers stepped back from purchases due to high prices of seaborne coal.

Japan, South Korea and Taiwan have been major consumers of high-CV Australian coal given the lower cost of freight in comparison to other origins of high-CV coal.

While imports in January-September 2020 had witnessed a year-on-year decline because of the pandemic, the increase in shipments of Australian coal to those countries in the same period of 2021 has been markedly higher.

In January-September, Japan imported a total of 82.3 million mt coal, with 59.5 million mt coming from Australia.

South Korean imports of thermal coal were at 67.5 million mt in January-September this year, slightly lower than 67.8 million mt last year. However, Australia's share of thermal coal exports to the country surged by 41% to 31.2 million mt in the reported period this year as against 22.1 million mt in the same period last year. In percentage terms, this helped Australia's share of thermal coal imports to South Korea to jump to 46.3% in the first nine months of 2021, from 32.5% last year.

Changing trade flows

Even Taiwan has witnessed strong appetite for Australian coal. January-September shipments to Taiwan stood at 21.4 million, nearly 17% higher than the same period last year. This boosted Australian share of imports to Taiwan to nearly 65%, from 58.5% in 2020.

China's coal imports over January-October stood at 257.34 million mt, 1.9% higher from the same period a year ago, customs data showed. But while China's coal appetite has remained intact, it turned to other origins to fill the Australian coal vacuum – such as Indonesia, Russia, and South Africa, according to Platts Analytics.

China had imported 31.58 million mt coal from Australia in January-June 2020, a rise of 48% year on year.

From January to June, China's thermal coal imports from Indonesia climbed to 35.9 million mt from 23.84 million mt same period last year, while imports from Russia rose to 15.93 million mt from 9 million mt. And from zero in 2020, China's thermal coal imports from South Africa over the same months stood at at 3.44 million mt.

Australia exported 124.15 million mt coal January-August as against 135.47 million mt in the same period last year.

The prime impact

With demand from India and other Asian markets, the impact of China's unofficial ban on Australian exports has abated, the Australia quarterly review for energy and resources for September 2021 said.

Coal exports from Australia are expected to rise 212 million mt in 2022-23 (July-June) from 192 million mt in 2020-21, the report said.

"If they increase exports then they will have to compromise on price. Indians did not buy Australian coal because of its quality but because of the price. They need to be at discount to sustain the new markets," said Vasudev Pamnani, director at Lavi Coal Info Private Ltd.

The price trend for Australia coal shows that the impact on 5,500 kcal/kg NAR was negligible despite restrictions from China. It continued to be sold at par with similar grades from other origins.

"Long-term contracts will change to that of a quarter from earlier duration of a year or so. Companies that have stake in mines in Indonesia will not be able to change their investment plans in the short term. This will be a big impact on the market structure," Pamnani said.

Australian 5,500 kcal/kg NAR coal with 23% ash has averaged around $81.90/mt FOB this year as against FOB for South African 5,500 kcal/kg NAR at $95.37/mt. In addition, 5,500 kcal/kg NAR price at the Quinhuangdao port rose from Yuan 560/mt ($88.03/mt) on Nov. 2 to a high of Yuan 2500/mt in October this year, Chinese authorities imposed price cap, pulling down the price to Yuan 1000-1200/mt presently, sources said.

Looking ahead into 2022, Platts Analytics believes that Australia and China will seek alternative trade partners to meet their respective requirements. If anything, similar to the current market situation, the trade dispute impact will be more greatly felt by Australian metallurgical coal producers and Chinese steel mills, rather than thermal coal producers and Chinese power utilities.