In a recent update, China has “indefinitely” suspended key economic dialogue with Australia, resulting further push to the diplomatic rift between both countries. Relations have been on the decline between the two countries especially since last year resulting in changed dynamics of Australian thermal coal market.
China had been a major importer of Australian coal before the tension between the two escalated last year. However, the unofficial ban on Australian coal last year, made Australian coal prices to plummet drastically. The 5500 NAR grade coal touched a low of $36/t, FoB basis in Aug’20 against $75/t in Jan’20.
Now with the indefinite suspension of economic dialogues between the two countries, the scope of Australian coal making its way to China and any support to the country’s thermal coal prices seems to be quite restricted.
Can India compensate for lost Chinese demand?
India had become a key export destination for Australian thermal coal last year after the Chinese ban and the subsequent price drop. In fact, increased demand especially from Indian cement manufacturers has provided some support to the Oz thermal coal prices in past few months.
However, the scale of imports from India is not able to match the quantity that China imported. According to Customs data, in 2020 China imported about 43.5 mn t of thermal coal from Australia despite the its unofficial ban on Australian coal in the second half of the year. On the other hand, India imported about 8.73 mn t of Australian thermal coal in 2020.
Demand from India turns tepid
Adding to the woes of Australian coal exporters is the fact that Indian demand for Australian coal have also subsided since past few days due to the rising COVID cases in the country, subsequent lockdown restrictions and escalated freight rates (up by 85% in last two months) between Newcastle and Indian ports.
CoalMint’s vessel line-up reveals only 0.27 mn t of thermal coal to arrive at Indian ports in next one week.
In terms of prices, the offers 5,500 kcal/kg NAR grade Australian coal are being heard at $57/mt FoB levels for June-loading for Capesize cargoes, while bids are few and far in the range of $54/t. In an unconfirmed deal, 55,000 tonne of 5500 NAR grade coal is heard to be finalised at $56/t for June shipment.
Outlook
As China’s ban on Australian coal is set to continue, and Indian demand is likely to remain subdued for next few weeks till COVID situation improves, any push to Australian thermal coal prices in the absence of any unforeseen disruption, seems unlikely.
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