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February 2021
Argus White Paper:
Seaborne coking coal market
2020 year in review
China’s ban on Australian coal imports redrew trade flows in 2020 and sparked a revival in fob spot trade,
lifting it to record volumes across a broader swathe of customers and regions. Cfr trade volumes slumped
with limited alternatives to Australian supplies, which remain at risk to wet weather in early 2021.
China’s import ban redraws trade flows
Seaborne metallurgical coal trade flows saw seismic shifts in
late 2020 as China’s ban on Australian coal forced its buyers
to turn to US and Canadian coal, while other regions bought
up discounted Australian supplies at a record pace.
Import restrictions into China have existed in varying forms
since 2017, such as annual quota limits and stricter quality inspections, but they had always been temporary. That changed
in October 2020 when major importers were verbally told to
stop importing Australian coal.
China has reset its annual quota each year, but this time
no end date has been given for the ban on Australian coal.
Estimates for its relaxation have been pushed forward from
early 2021 to after the lunar new year holiday and to now not
until 2022. Australian coal vessels have not been allowed to
discharge or clear customs since early October, with only a few
exceptions. No Australian coking coal has been sold to China
since then.
This has put Australian producers in a bind. China imported
a record 35.4mn t of Australian coking coal in 2020, around a
fifth of Australia’s met coal exports. The country either needed
to cut output or find customers for 3mn-4mn t/month of supplies, and the market needed to find a home for an estimated
4mn-5mn t of coking coal sitting in limbo off China’s ports.
Key takeaways
Trade flows
„„ China’s informal ban on Australian coal shifted trade
flows, lifted fob trade to record volumes
„„ Asia-Pacific spot metallurgical coal trade volumes fell
by 24pc to 23.4mn t in 2020
„„ Record quarterly spot trade volume of Canadian and US
coal at 525,000t
Price trends
„„ Record cfr China price premium to fob Australia of $106.85/t
„„ US and Canada brands flip to a premium to Australian
coal
„„ Customer base shift flips premium low-volatile prices to
discount to premium mid-volatile
This scramble for buyers lifted spot trade volumes for fob Australia tier 1 coal to a record 2.6mn t traded in December and
4.42mn t in the fourth quarter.
Metals
illuminating the markets
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Argus White Paper: Seaborne coking coal market 2020 year in review
China’s domestic coking coal prices were already at a premium
of $70/t equivalent over tier 1 imports before the ban, so
Chinese buyers could afford significantly higher import prices
compared with other seaborne buyers when they searched out
alternatives.
Record fob spot transactions
Fob Australia Tier 1 spot trade volumes
mn t
5.0
North America to the rescue
4.5
4.0
With the doors to Australia shut, Chinese buyers were forced
to turn to North American suppliers, a known, but less commonly used alternative.
3.5
3.0
2.5
2H 2020 Tier 1 cfr China spot volume share
2.0
1.5
14%
1.0
0.5
Elkview
0.0
Q1 19
Q2 19
Q3 19
Q4 19
Q1 20
Q2 20
Q3 20
Q4 20
„„ All-time high of fob spot transactions in the fourth quarter of 2020 at 4.42mn t versus 3.56mn t a year earlier.
„„ The number of fob tier 1 transactions also rose to a record high of 64 in the quarter.
„„ The average fourth-quarter spot price fell to $109.40/t
fob in 2020 from $139.89/t in the fourth quarter of 2019.
Cfr China premium rises to record
The Argus cfr China premium low-volatile (PLV) hard coking
coal index soared by 37pc to $218.15/t by the end of 2020
after the ban started, while the corresponding fob Australia
index slumped by 23pc to $103.50/t over the same period. The
opposite trends lifted the cfr China index to a record premium
of more than $100/t above the fob Australia index. The last
time such a wide price gap appeared was when Cyclone Debbie sent fob prices soaring in early 2017.
Fob Australia Tier 1 spot trade volumes
$/t
350
fob Australia
Raven
Blue Creek #7
Other (Australia)
18%
Canadian coal producer Teck Resources even created a
bespoke high coal strength after reaction (CSR), mid-volatile
blend specifically targeted to Chinese customers, named Raven. Other well-known brands such as Standard and Elkview
have been popular, mainly among coastal steel mills in south
China, many of whom are longstanding customers of Teck
coal.
While US coal is traditionally seen by many in China to be less
appropriate given their higher volatile matter content, Oak
Grove and Warrior’s Blue Creek No.7 all had strong buying interest in China, mainly because of the high CSR. Other brands
like Coronado’s Buchanan fetched higher prices as well for
their potential to be used in blends to lower ash content. This
became increasingly critical as many Chinese steel producers were forced to use domestic Chinese coking coal that had
higher ash levels. The addition of Buchanan helped to lower
the overall ash content of blends.
Chinese buyers have few other options, and North American
mining companies are not geared to rapidly expand output
after previous market downturns. The US and Canada could
increase coking coal exports by 5mn t and 3.5mn t in 2021,
Argus Consulting Services forecasts in the latest monthly
Seaborne Coal Outlook.
cfr China
300
250
200
Mongolian supplies are expected to rebound from their 30pc
fall to 23.8mn t imports to China in 2020 but not enough to fill
the gap. Mongolia also cannot match Australia’s quality, while
its long-truck hauls are not ideal for coastal steel mills.
150
100
50
2017
18%
50%
2018
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2019
2020
2021
2
Argus White Paper: Seaborne coking coal market 2020 year in review
Mozambique’s Moatize supplies have also faltered, prompting Japanese trading house Mitsui to exit as an investor and
Brazilian mining firm Vale to consider selling the mine.
cfr trade for early 2020 arrivals. This increase brought forward
activity from early 2020, which with stalled trade in late 2020
widened the year-on-year drop.
Price relationships switch places
Fob basis tier 1 deals rose to 132 in 2020 from 113 in 2019.
Semi-soft and PCI liquidity increased to a combined 55 deals,
with 3.93mn t reported in 2020, up from 36 deals and 2.75mn
t in 2019.
PLV coking coal like Saraji and Peak Downs historically have
priced at a premium to the tier 1 fob Australia index because
of Chinese buyers’ preference for coal with high CSRs and lowvolatile matter. But fob price dynamics with the ban began to
reflect the preferences of Indian buyers entering the market.
They prefer premium mid-volatile (PMV) brands for higher
fluidity over low-volatile content and high CSR. This pushed
traded prices for Saraji and Peak Downs coal below the index,
while Peak Downs North and Goonyella flipped from discounts
to premiums over the index.
The magnitude of the shift is noteworthy for PMV coal, which
at one point traded as much as $7/t below the index, while the
discount for PLV never exceeded $2/t.
Brand differentials to Tier 1 fob Australia index
mn t
9
8
Tier 1
Tier 2
Semi-soft
PCI
7
6
5
4
3
2
$/t
4
Asia-Pacific met coal spot trade volume
Goonyella
Peak Downs
Saraji
Peak Downs North
1
0
2
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
17 17 17 17 18 18 18 18 19 19 19 19 20 20 20 20
0
Looking ahead
-2
Despite various iterations of restrictions over the years,
China’s controls on imported coal are expected to be a mainstay of markets.
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-6
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Feb Mar
Apr May Jun
Jul
Aug Sep Oct Nov Dec Jan
The ban also flipped US and Canadian coal brands to premiums over Australian brands for the first time in Asia-Pacific
trade. The grades have not competing directly with each other
and instead are trading in separate buckets — cfr China and
fob Australia markets. US and Canadian coal was selling into
China at more than $100/t higher than Australian coal for
export at the end of the fourth quarter.
Overall trade volumes fall by 24pc
Asia-Pacific spot met coal trade volumes fell by 24pc to
23.4mn t across all categories in 2020. Argus observed 306
spot deals in Asia-Pacific trade for tier 1, tier 2 and semi-soft
coking coal and pulverised coal injection (PCI) coal in 2020,
down from 375 deals in 2019.
The main driver of the fall was a 47pc drop in cfr China tier 1
trades to 92 deals from 172 deals in 2019. China’s anticipated
reset of its annual quota for 2020 drove a late 2019 surge in
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Australia has surprisingly managed to emerge relatively
unscathed from China’s import controls targeted at them.
Despite suffering an initial setback, most producers have
successfully reallocated volumes into other buying regions.
Mills in Europe that declared force majeure on US coking coal
contracts in the depths of the 2020 Covid-19 lockdowns freed
up tonnage for US producers to sell to China but left the mills
needing replacement coal.
China’s large-scale buying of US and Canadian coal has
pushed buyers from other regions to fulfil their volume shortages from Australian coal producers instead. Part of the answer has been tapping the stranded cargoes at Chinese ports.
The $100/t price differential between cfr and fob markets
was too large for buyers and sellers to ignore. China signalled
there would be no change in policy in the short term, forcing
the coal to find a new home or else keep racking up demurrage
fees. Trading firms asked mills in Europe and Japan whether
they would swap some of their US coal supplies for Australian
coal, with some trading firms offering to split the profits.
3
Argus White Paper: Seaborne coking coal market 2020 year in review
This swap-and-split-the-profits trade narrowed the cfr-fob
price difference by a third in January. Fob prices rose by
$48.40/t, or 45.7pc, to $152.05/t over 4-27 January, while cfr
prices rose by $16.65/t, or 8pc, to $218.15/t over the same
period.
Chinese import trade falls to record low
end of 2020
Cfr China Tier 1 spot trade volumes
mn t
La Nina weather risks to Queensland coal supplies remain a
factor in early 2021. This weather supply-shock risk, coupled
with China’s demand-shock brakes, have generated abrupt
shifts in the market, which in turn have supported spot trade
volumes and increased indexation in contracts by participants trying to navigate the uncertainty.
6.0
China’s sheer size and buying power, Australia’s unpredictable weather and the very nature of coking coal being difficult
to substitute will continue to make waves for years to come.
2.0
5.0
4.0
3.0
1.0
0.0
Q1 19
Q2 19
Q3 19
Q4 19
Q1 20
Q2 20
Q3 20
Q4 20
„„ Cfr China tier 1 spot trade volumes fell to a record low of
525,000t in fourth-quarter 2020 from 4.8mn t in fourth-quarter 2019, a clear impact of the import restrictions.
For more information please contact:
Rou Urn Lee
Senior Reporter – Coking Coal
Direct: (65) 6496 9931
Email: [email protected]
argusmedia.com
Copyright © 2021 Argus Media group
„„ All of the fourth-quarter cfr China tier 1 spot trade was
US or Canadian-origin premium low-volatile coking coal
such as Teck Raven, Teck Elkview and Blue Creek No.7.
Prices peaked at $211/t cfr China in the quarter.
„„ The average fourth-quarter cfr China spot price rose to
$155.84/t from $152.77/t a year earlier.
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