A potential ban on trucking coal, ore and steel in several regions in China could dampen demand for seaborne raw material imports, market sources said Monday.
As part of the ongoing effort to combat pollution levels, the Chinese government is considering to ban the transportation of coal, ore and steel via trucks, with the alternative option being to rail the material, at least six north China-based steel and raw material sources said.
While no official documentation has been issued by the Chinese authorities, market participants in the country said this move was highly likely to take place.
Market sources said the affected areas are mainly Shandong province and the Yangtze River Delta area, which includes Zhejiang and Jiangsu provinces.
Trucking activities in the area will be replaced with rail freight by September 2018, and north China's coastal ports in Beijing, Tianjin and Hebei will have the plan enforced by the end of 2019, sources said.
Chinese media reports also said there are plans to expand railway capacity in the country, by building new railways towards Caofeidian port in north China, one of the busiest ports in the Hebei region. However, market participants said there is little certainty to this information.
Trucks are commonly used to transport coal and coke in China, however, these have been a highly polluting mode of transport.
China has been closely regulating truck freight domestically for the purpose of environmental protection. Last year, it imposed restrictions on trucking coal via diesel-powered trucks in several regions such as Tangshan and Shandong.
RAW MATERIALS DEMAND MAY BE HIT IN THE LONGER TERM
Coking coal miners said this ban could have a dampening effect on seaborne coking coals in the longer term. Rail bookings may require more advanced bookings, and this may deter seaborne spot buyers while supporting domestic coal, as these tend to be sold on a more consistent basis.
Also, a revamp on transportation from truck to railways would make seaborne coals less cost competitive as rail transport tends to be more expensive than trucking, with domestic coking coal mines having access to cheaper options, one trader said.
Another issue with exacting such a truck ban, particularly in the north, is that rails do not reach many coke plants or smaller mills in Tangshan. Otherwise, these may be too near to the port to move coals by rail, sources said.
"If they exact this ban on mills that are above a certain distance from the port, this may be possible," a coking coal miner said. "If it is over short distances, I can't see how they will do it."
Another concern was whether rail capacity could be quickly ramped up to match existing truck capacity in such a short time.
As for affecting coking coal trade volumes and prices in the short run, sources said it should have little or no impact.
The news first emerged last week, with prices remaining relatively stable amid the news. Platts assessed Premium Low Vol flat week on week at $184.75/mt FOB Australia Friday, and CFR China prices down $2.25/mt to $195/mt.
"If the government can say this, it will happen," a north China-based steelmaker said.
