China is becoming a major coking coal importer and as a result the global market might face tightness once demand from the rest of the world increases, an analyst with Scotia Capital said in a research note.
"When end users of steel in the rest of the world finish de-stocking and begin to restock, global steel mills will likely find that China's market shares for coking coal and iron ore have increased by such a big margin in the past few months that there is no excess left," said Na Liu, an analyst with Scotia Capital, in a research note.
China's overall coal imports have rocketed this year, hitting an all-time record of 9.16 million tonnes in April. Most went to China's power sector, but 2.8 million tonnes was coking coal, principally used in steel making, official Chinese customs data showed.
Coking coal imports in April were more than 13 times higher than in January, before China's steel industry began ramping up production on growing hopes of an economic revival.
Most of April's imports came from Australia, which has this year sold China about nine times as much as Mongolia, traditionally China's main supplier.
"China's strong coking coal import demands are likely to continue, and this year might represent a structural shift in the global coking coal market, with China becoming a major importer," Liu said.
Domestic supply has been constrained as the government continues to close small mines due to safety concerns, which has pushed Chinese prices to a premium over the international market, encouraging imports, Liu said.
Production in Shanxi, China's largest coking coal producing province, has fallen by 25 to 35 percent from its peak, or some 70 million tonnes of supply.
Chinese demand for imported coking coal was likely to increase because the government is pushing steel firms to relocate production to coastal areas, where imports will be within easy reach, Liu said.
"What China has done so far in this downturn is suck up most of the market surplus and lay a solid foundation for a potential bull market. That said, the real bullish trend for both coking coal and iron ore will only start when steel mills in the rest of the world begin to ramp up production."
But without improved demand from the rest of the world, China alone could not ignite a bullish global coking coal market.
China's iron ore imports also hit record highs in the past few months, but so far it has failed to trigger a full-fledged bull market, as steel plants are running at less than 50 percent capacity in the rest of the world, Liu noted.
Source: Reuters
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