A potential 25% tariff on US coking coals to China may have little long-term impact on most Chinese buyers, though concern about defaults on recent trades is mounting, market sources said.
Earlier in June, the Chinese Ministry of Commerce said US exports to China may face additional 25% tariffs. The additional tariff may include US coking coal exports to China.
S&P Global Platts news feature: China-US trade war
This is an abrupt about face which could hit several Chinese buyers, particularly those that have bought US coking coal.
Earlier in June, at least two major Chinese steel mills had been approached by Ministry of Commerce officials, and were asked either to maintain or increase their imports of US coal in a bid to reduce the US' trade deficit with China. There was also a certain amount of expectation on the part of Chinese buyers that the 3-6% import tax imposed on US coking coals might be abolished.
As a result, sellers reported increased inquiries from Chinese buyers, with a greater variety of US coking coal brands surfacing in China.
While there is uncertainty about the 25% tariff being implemented, as well as its potential timing, market participants are expecting it to be imposed in July, shortly after US tariffs on Chinese goods are due to take effect on July 6.
Market participants also said that the tariff is expected to be paid by the importer and would be imposed when the cargoes are at Chinese customs.
HUGE COSTS FOR US COAL BUYERS
There is concern from traders and buyers who had earlier purchased US coking coals in May to June. The voyage from the US to China takes about 40-45 days, which means that Chinese buyers who bought their cargoes then could face additional tariffs.
A source at a Chinese mill and US coking coal buyer said that should this tariff come about, he would never buy US coal again, and previously most Chinese buyers procured US coals based on cost-effectiveness. Finding a replacement was easy, he added.
While several sources were concerned that that with such a steep additional cost, there may be buyers who choose to default on cargoes, the steel mill buyer said that it was unlikely a large mill would risk its reputation for a single cargo.
However, there might be a chance of this happening with smaller players, he said.
As for one US coal seller, he said that should this take place, it would not affect overall US coking coal exports as China was not a major buyer. However, it could mean that he would no longer be able to sell US coal.
Another seller of US coal said that he is currently holding back from selling.
Market participants also said that US coking coal volumes to China remained small, and the impact of additional tariffs would likely be minimal.
Should US coking coal sellers divert their cargoes elsewhere, this may present opportunities for low ash low sulfur coking coals from other origins, one cokemaker said. US met coal exports in 2017 totaled 49.5 million mt, according to the National Mining Association.
According to Chinese Customs Statistics, China imported only 2.8 million mt of US coking coal, 353,553 mt of US thermal coal and 21,000 mt of US metallurgical coke in 2017.
