Restrictions deter Chinese steel producers' imports

Further tightening of regulations on Australian coal imports has forced more Chinese steel producers to turn away from the seaborne coking coal market, despite a lack of suitable alternatives in the domestic market and other export regions.

Chinese steel mills were informed that vessels carrying Australian coal and discharging from Fangcheng port in Guangxi province are subject to a "radioactive content examination" for every 500t unloaded. Third-party importers such as trading firms are also only allowed to discharge 3,000t of coal a day.

These restrictions are an expansion of a previous import policy announcement that coal vessel discharging can only take place during the normal operating hours of Chinese customs workers. This essentially cut coal unloading hours down to about 8-10 hours each day, depending on the individual port in question.

"We have a cargo currently at Fangcheng port that is unloading coal for only about seven hours a day," a south China steel producer said. "At this rate it can take up to four months just for one coal cargo to complete all the necessary procedures at the port."

The same steel producer added that he had completed all purchasing activity well in advance for the next four months, so that it will be freed up to keep track of the unloading situation at the ports.

Restrictions at Rizhao port in east China's Shandong province are slightly less stringent as coal vessels are allowed to discharge about 10,000 t/d, an east China steel producer said. There has been no similar restrictions in the key coking coal handling port of Jingtang in north China's Hebei province, albeit with extended times being reported for customs clearance.

A handful of Chinese steel producers have continued to buy Australian coking coal, even after the initial restrictions for the year were announced in late January, because alternatives to the high-quality premium Australian coking coal are rare. But these expanded restrictions should have a further dampening effect on Chinese steel producers' Australian coal purchases, market participants said.

A south China steel producer issued a tender to buy April-loading Peak Downs or Saraji earlier this week. But it later backed out because offers were too high, the producer said. There are only two Chinese trading firms holding on to cargoes with these requirements, with both cargoes bought at $215/t cfr and above.

But some expect prices to eventually soften should the restrictions continue to be imposed. Some Chinese steel producers have already cut volumes from their long-term contracts, so Australian coal producers are likely to have more excess tonnage of which not all can be absorbed by fob buyers. Producers should eventually have to lower their offers sufficiently such that Chinese steel producers are willing to buy imports again.