China’s annoyance at Australia’s hardline stance on political interference and demands for an independent inquiry into the root cause of the Covid-19 pandemic has been a win for at least two other Asian countries, Japan and India.
According to one analysis Japan and India have been the primary recipients of diverted cargoes, helping cut the price of steel in those countries.
Credit Suisse, an investment bank, said in a note to clients earlier this week that Australian premium hard coking coal was being sold in India and Japan at $70 a ton less than China’s domestic price for lower-quality steel-making coal.
Coal Markets Distorted
Steel mills forced to abandon Australia as a supplier, despite its coking coal being widely-regarded as the best in the world, have been seeking replacement material from other countries, including Canada and the U.S.
Credit Suisse believes the market will gradually correct as Australian coal miners adjust to the requirements of different countries, but in the short term those countries are enjoying a bonus in the form of cheap coal.
“Distressed Australian cargoes have been bought by India, Japan, South-East Asia and Europe, but it seems cargoes remain as the price has sagged further this week.
Credit Suisse said once the distressed selling ended Australian hard-coking coal prices should recover, even without Chinese buyers.
“Hard coking-coal demand is returning in Japan, Korea and Taiwan, India, Brazil, Europe and Vietnam which should absorb most of the Australian supply,” the bank said.
“It may not permit prices of $145 a ton that we forecast with Chinese demand, but a price of $130/t seems achievable.”
Other Markets Open
Shipments of Australian coking coal to India hit a record 4.9 million tons in September, up 7% month-on month while China’s imports sank to 1.8m/t.
“Japan also opened up, with imports up 73% month-on-month to 3.1m/t in September as domestic auto industry and electronic component industries recover,” the bank said.
“Overall, Australia’s total coking coal exports rose 5% month-on-month in September to 14.9m/t, which was down 2% on a year-to-year basis.”
Credit Suisse said the coking coal ban was detrimental to Chinese steelmakers.
“So, we expect it will be removed after Chinese New year and prices will normalize.”