China thermal coal buyers eye increased Colombia coal imports on low freight: sources

London — Chinese buyers are looking to take advantage of low freight costs and ramp up their intake of Colombian coal, sources said Thursday, with domestic production slow to recover as the effects of the coronavirus continue to weigh on the country's workforce.

"Colombian coal has been gaining traction in China amid the price arbitrage with a similar grade of Australian coal," a Singapore-based trader said. As Chinese production remains restricted, market participants have said they will be looking to buy more Colombian coal as long as freight rates stay competitive.

Traditionally the longer voyage times have made Colombian exports into Asia undesirable; however, the restrictive custom clearances applied to Australian thermal coal has put the spotlight on Colombian supplies to Asia recently, boosting the appeal for the South American grade and making it a strong competitor to other India-Pacific origins.

Australian imports are having to wait 40-60 days for custom clearances, while non-Australian materials are taking about 30 days.

With Capesize freight rates continuing to slip, Chinese buyers are welcoming the influx of Colombian tonnages into the region, with Capesize freight on the route heard between $22-$23/mt.

"It's all about the freight rates -- they're still so low that Colombian coal can compete against other coals in the Pacific," a Europe-based trader said Thursday.

On a 5,500 kcal/kg NAR South East China basis, Colombian coal is at a $10.70/mt discount to domestic Chinese coal, and is therefore seen as the most competitive origin at present, with Indonesian coal close behind at a discount of $7.70/mt and Australian-origin coal looking the least competitive at a discount of $6.10/mt, according to a Perett Associates report.

Market sources in China had reported a trade for a Capesize vessel of 6,000 kcal/kg NAR Colombian coal at $69/mt CFR China Thursday, while additional offers were heard for FOB Newcastle 6,000 kcal/kg NAR at $66/mt.

Although the short-term disruptions to Chinese supply remain bullish due to the ongoing uncertainty surrounding the coronavirus, S&P Global Platts Analytics expects a 4% year-on-year increase in Chinese domestic production in 2020, and that Chinese coal demand will "fall off" in tandem with production, with coal stockpiles at Chinese power stations "more than adequate."