China’s offshore purgatory attracts more Australian coal loads

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After being loaded with coal, DZ Weihai sank in the turquoise waters off the coast of Australia this month and embarked on a 14-day voyage to the southern Chinese port of Yangpu. As long as the ship waits to unload its cargo on arrival, anyone assumes.

Despite China’s ban on coal imports from Australia, which has left about 70 ships, 1,400 seafarers and 6.4 million tonnes of fuel in offshore languages, some ships continue to make the journey. While the cargo is blocked and the crew are caught between the authorities who do not let them unload and the buyers who do not let them go, perhaps the most curious of all is what drives additional shipments.

While trivial issues such as contractual commitments play a role, traders are likely motivated by a mixture of the hope and money. China is considering accepting loads that arrived before the ban could ease restrictions of optimism. If they do, a wait awaits, as the gap between coal prices in China and Australia has widened to a record high.

“Chinese buyers with blocked goods are reluctant to resell them because the cost of these goods is much lower than domestic prices,” said Rory Simington, chief analyst at Wood Mackenzie Ltd. “Even if the goods are not released for another six months, the cost including the decline would still be well below current domestic prices. ”

A single shipment of 100,000 tonnes of coking coal from Australia would cost a trader about $ 14 million, based on sea prices, not including shipping costs. The same amount bought on the domestic market would be about 28 million dollars. The cost of failing to unload a bulk carrier, known as a refund fee, is between $ 13,000 and $ 17,000 per day.

The Australian ban has never been publicly acknowledged by Beijing, making it difficult to identify its start date. Chinese power plants and steel mills have been verbally told not to use fuel in mid-October. Authorities also ordered traders to stop buying a raft of goods from the country, including coal, starting November 6.

The Chinese customs administration did not immediately respond to a fax requesting comments.

As of Oct. 15, 20 ships have been loading coal into Australia and reported destinations in China, including DZ Weihai this month, according to Bloomberg-compiled delivery data. Some of them, such as Rixta Oldendorff, went to other countries in the middle of the trip. But at least 11 have joined the larger flotilla and are waiting outside Chinese ports to unload.

Certainly, China’s ban on Australian coal has dramatically changed global commodity flows: mainland buyers ordered more shipments of coal from South Africa in December and boosted imports from Indonesia and Russia. The value of China’s Australian coal purchases fell 16 percent last year to $ 7.9 billion.

However, China is considering the acceptance of some Australian coal shipments that arrived before the import ban came into force, a person familiar with the situation said this month. The deliberations are at an early stage and any decision would require the approval of senior leaders. The wider ban on Australian coal remains in place and, ideally, the cargo would be resold to buyers in other countries, he said.

“It is interesting to see new coal transactions that have taken place recently, despite no clear signal that China’s ban on Australian imports will be lifted soon,” said Monica Zhu, a bulk analyst for Kpler. “These are individual businesses and may not be the main market.”

– With the assistance of Dan Murtaugh, Matt Turner, Winnie Zhu and Serene Cheong