While a US-China trade deal might lead to a prompt response in met coal exports from the US to China, the larger outcome would be an improved global economy and boost to the steel market, a Seaport Global report said Tuesday.
Seaport analysts Mark Levin and Nathan Martin noted Xcoal's Jack Porco's claim that if an agreement between the US and China is reached, and coal is included, the market should expect to see a prompt response from the US and a surge in exports.
"A trade deal that includes coal might also make sense in the context of China making it progressively more difficult for Australian cargoes to clear customs in a reasonable amount of time," the analysts said in a Seaport report.
However, despite China needing to import the higher quality, high CSR and lower ash met coal to meet environmental goals, China does have significant coking coal reserves.
According to the report, Cui Pijang, director of the China Coking Industry Association, "said that while China is short of high-quality coking resources, it doesn't mean the country can't meet its entire coke consumption with domestic output."
Additionally, given the current demand environment, Levin and Martin wrote, the US may not have the spare capacity to meet incremental demand, adding that the US is "significantly freight-disadvantaged" into China with time and cost.
US producers instead chase the highest price on the global market, generally in Europe and Brazil, leaving China as a "clearinghouse for spot tons," Levin and Martin wrote.
"China is generally viewed as the most sensitive importer to price," they added.
However, Levin and Martin do believe a US-China trade deal that eliminates the 25% tariff on coal could bring US exports up to 2 million mt-3 million mt per year versus the current 1.1 million mt per year.
Although the increase in met exports to China would not be a "big needle-mover" given export volume of about 62 million mt per year, Levin and Martin wrote, a US-China trade deal "would clearly eliminate a major global economic risk."
Any increased stability or uplift in global economic activity "would be a win for coal producers and their most important customers, steel companies," they wrote.
