The fallout of the move, which is expected to affect Australian coal shipments, came in the form of a weakening of the Australian dollar amid concerns about political tensions between Australia and its largest trading partner, China.
But that was not the first time that market participants in China had encountered issues relating to the import of Australian coal.
They told Fastmarkets MB earlier this year that the extended customs clearance process at northern Chinese ports was singling out Australian coal, albeit unofficially, amid simmering tensions between the two trading partners.
And while market participants insisted on Thursday that there was no ban on the import of Australian coal, there is no denying that the inflow of such cargoes might remain sluggish in the weeks to come.
A trader source in Singapore said that he had decided to adopt a wait-and-see approach when it comes to the restrictions at Chinese ports.
“It is not a ban on coal imports from Australia but the customs clearance process is longer and whether that will be the situation for the long term remains to be seen,” he said.
The trader source does not expect China to ban Australian coal, especially metallurgical coal, which is used to produce steel.
Earlier this week, top coking coal exporter BHP said that China’s import policies remained a source of uncertainty for the market
Fellow miner Anglo American said that while it had yet to see any decline in its coal exports amid news of the Chinese port restrictions, it was keeping tabs on developments surrounding them.
A steel mill source in China told Fastmarkets MB this week that logistics had become a major factor to consider when making procurement decisions.
“It’s an administrative process if you have to deal with extra paperwork with regard to imports, and sometimes an added cost as well,” the source said.
While Chinese mills’ appetite for top-grade materials from Australia remain, the fact that recent shipments have been found to be not up to par with the expected quality was complicating matters for the mill source.
Another mill source whose shipment recently arrived at one of the ports under Dalian’s jurisdiction said there was no certainty about when it would be released by customs authorities.
“It is not an issue for us at the moment but we need to fix this soon,” he said.
The second mill source said he might have to resort to buying additional coking coal from another port if his cargo is not released soon.
“That will definitely mean extra cost,” he said.
The current situation is somewhat of a throwback to that in 2016, when the Chinese government’s restriction on domestic production
- meant to bail out financially strapped miners in the country - ended up affecting supply flows, and consequently, prices.
That move not only pushed up seaborne coking coal prices due to surging demand from China, but also resulted in buyers establishing longer-term business relationships
with domestic miners to guarantee their respective supply.
Ironically, despite the Chinese port restrictions that became clearer on Thursday, buying activity among traders picked up, which sent seaborne spot coking coal prices upward
This is in contrast with a typical scenario where there are uncertainties over a commodity’s supply and demand, which often result in market participants becoming more risk averse, drying up trading activity in the spot market. For the met coal industry, such a scenario would constrain an already-illiquid market even more.
To better gauge market movements, price indices such as the one published by Fastmarkets MB were introduced to the coking coal market over five years ago, and today, physical contracts between traders, end users and miners widely incorporate these.
Fastmarkets MB uses a transaction-based methodology to ensure objectivity and transparency in the calculation of its indices.
However, concerns still persist over the lack of liquidity in the spot market and therefore its transparency, though the emergence of trading platforms such as Global Coal in recent years have improved things.
That said, any uncertainties that emerge over the import policy of China - the world’s biggest buyer of coking coal - will certainly keep market participants at the edge of their seat.