METALLURGICAL COAL
China’s Metallurgical Dilemma
April 2019
In March 2019, multiple sources reported that Chinese ports have supposedly imposed a “ban” on all Australian coal imports. The impact on the market has been disastrous and caused the spot price to fall sharply. While the thermal coal market still seems to be suffering, the coking coal market has recovered quickly and remained robust throughout the month. Speculations have continued regarding the long-term impacts of the restrictions—however, it is quite clear that China’s dependence on Australian coking coal imports isn't lessening anytime soon.

China’s Domestic Production

China’s dependence on Australian premium hard-coking coal is expected to continue in the future as domestic coking coal production is expected to decline further in 2019. China produced approximately 454Mt of saleable coking coal in 2018, which represents a 10% fall since 2014.

Chinese coal mines produced 1.1Bt of ROM metallurgical coal in 2018, mainly from the central eastern provinces; however saleable product yield for Chinese metallurgical mines is typically 40~50%. Overall, China is able to meet 90% of its coking coal demand from domestic production. Shanxi province produced 43% of China’s metallurgical coal production in 2018 but 56% of production is either gas coal or 1/3 coking—semi-soft coking coal (SSCC) and semi-hard coking coal (SHCC). With half of China’s domestic metallurgical coal production comprising gas coal and 1/3 coking, the country can potentially achieve self-sufficiency in SSCC and SHCC. However, China’s demand for premium low-volatile hard coking comfortably outstrips domestic production.

 

 

China’s HCC Gap and Reserves

China’s typical blast furnace coking coal requirements are one third each of hard coking coal (HCC), SHCC, and SSCC, with pulverised coal injection (PCI) replacing a portion of the SSCC. The domestic production for low-volatile HCC has always been proportionally less than its HCC coke mix requirements, indicating China is either conserving the HCC reserves or simply short on the reserves. Unfortunately for China, the majority of the country’s 221Bt defined metallurgical coal resources are semi-soft and medium-to-high volatile semi-hard coking coal. The main metallurgical coal province of Shanxi is well explored, but further exploration in other provinces may define more metallurgical coal resources. These resources would be deeper and therefore more expensive to mine, and would have to compete with high quality, lower cost imports. As a result, China’s coking coal imports are expected to rise 10% in 2019 to 65Mt, predominantly filled by premium HCC from Australia and Mongolia.

 

Who Will Supply all the HCC to China?

Australia and Mongolia are by far the dominant suppliers of China’s coking coal imports. Indeed, China imported approximately 27Mt of coking coal from Australia in 2018, followed by Mongolia who supplied over 23Mt of coking coal to China.

 

 

If China does indeed impose a “ban” on all Australian coal, China is expected to struggle to fill the 30Mt deficit of premium quality coking coal in the short term. Russia, Canada and Mongolia are all possible alternative suppliers, however, 30Mt is a challenging volume for any supplier to fill. With the Vale incident expected to increase demand for premium coking coal further, Australian suppliers are currently in a good spot in the global coking coal market.