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China domestic coking coal miners not keen to cut Q1 2020 prices: sources

Source: Pixabay, November 22, 2019

Chinese domestic coking coal miners showed little inclination to reduce first quarter 2020 contractual prices for various coal categories, including Premium Low Vol, sources said Thursday.

Negotiations for Q1 2020 contract prices were held at Nanning, Guangxi, from November 19-22, involving major domestic coking coal miners, including China's largest producer, Shanxi Coking Coal Group.

Chinese steelmakers had earlier hoped that miners will reduce prices, on the back of weak seaborne coking coal prices seen in the second half of 2019.

"Chinese steelmakers don't have a choice. They will still have to sign the contract with the prices Chinese miners are asking for. There is just too much power within the Chinese coal producers," a non-Chinese producer said.

Premium Low Vol coking coal delivered prices to China began losing support since mid-June. This occurred due to a confluence of factors, led by weak ex-China demand amid production cuts in Europe, India and Japan. At the same time, China was trying to rein in its import volumes by making import policies stricter. The slowdown in customs clearance led to a build up of coking coal on the port grounds, leading to longer wait time for ships out in the sea. There were also added administrative obligations to fulfill, steelmakers said.

Sell-side sources said there was little inclination to reduce prices at this juncture. "Moreover, with the recent mining accidents in Shanxi, there will be greater scrutiny on mining safety and this may lend support to domestic prices," a producer source said.

However, market participants said there could still be room for renegotiation of prices when cargoes are due for delivery to steelmakers in Q1 2020.

Until then, seaborne spot prices remain a very cost competitive option, relative to similar quality domestic coking coal and seaborne coals that have been cleared by customs available at Jingtang port. Sources said demurrage fees may vary from a few dollars to $10/mt, depending on the number of waiting days. Many said that the demurrage fees was negligible, and had already factored it in while negotiating for a cargo.

Market sources also hinted that if Q1 2020 prices were to be unchanged, they expect steelmakers to return to the seaborne spot market, where prices have fallen off to three-year lows.

The arbitrage window between domestic coking coal and seaborne coking coal of similar PLV quality has been wide open this year. Even the most elusive steelmakers in China had returned to the seaborne spot market to pick up cheap cargoes. Should the arbitrage opportunity continue in the spot market, Chinese steelmakers would continually seek for cheaper seaborne cargoes, market sources said.

S&P Global Platts assessed seaborne Premium Low Vol CFR China at $145/mt CFR China Wednesday, and the Shanxi PLV CFR China equivalent at $184.38/mt Wednesday, with the seaborne material a cheaper option.

News Source: S&P Global