China's "unpredictable political moves" in relation to coking coal from Australia has driven some Chinese steel mills to increase their contractual supplies of the steelmaking raw material from elsewhere, sources told Fastmarkets this week.
Several mills increased contractual volumes for north American metallurgical coal at the end of 2020, an end user from south China said.
"We have also added about two vessels of hard premium coking coal for the yearly contact volume with a Canadian supplier, so spot liquidity for such coal will continue to fall in 2021," an end user from South China said.
A trader source said the reduction in spot liquidity would also squeeze reselling margins, with a few traders having already left the market.
The fallout from the growing tensions between the two nations over the origins of the Covid-19 pandemic, along with Australia's call for a boycott of Chinese technology firm Huawei, has not been insignificant.
And one effect has been the
reshaping of metallurgical coal trade flows, which has reduced supplies for Chinese steelmakers and has resulted in a spike in seaborne coking coal prices.
An increase in the the supply of Australia-origin coal cargoes to the spot market has been observed by market participants since
China's unofficial ban on Australian coal in October and the improving weather conditions expected in Queensland, Australia in March are expected to further boost the availability of spot cargoes.
Even though
several vessels unloaded last week, there remains a need for end users to resell Australian coal cargoes, some of which are still anchored along China's coast, sources told Fastmarkets this week.
"Some cargoes are looking for new buyers... as most cargo owners do not expect the ban to be lifted in the first half of 2021," a trader source from Hebei province said.
Buyers from Japan and South Korea have showed only limited demand for Australia-origin premium low-volatile coking coal (PLV) from Chinese sellers.
"We normally depend on contractual cargoes and have limited port or plant capacity to store spot cargoes," a mill source from South Korea said.
But a major Australian miner has started selling PLV cargoes at "bargain prices" to term customers in Japan, a Tokyo-based trader told Fastmarkets.
"There is very little chance [of Japanese steelmakers] taking cargoes from China," he added.