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Canada's Teck sees higher China met coal sales as Australia hit by import curbs

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Canada's Teck sees higher China met coal sales as Australia hit by import curbs

Highlights

Teck sees firmer-than-expected China met coal sales

China demand strong on steel output rates

Mongolia imports rise to record in September

London — Teck, the world's second-largest seaborne coking coal miner, is seeing stronger-than-expected met coal demand in China, after authorities reportedly warned buyers to cool off buying Australian coals.

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China has not clarified its coal import restrictions, with no official announcements, and it appears the measures are mainly directed toward Australian coals, Teck's senior vice president of marketing and logistics, Real Foley, told analysts in a quarterly update.

"We are starting to see a few sales to China above original expectations and that is coinciding well with our operations ramping up through the quarter," Foley said.

China's coal and port quotas may be "reset" at the start of 2021, he added, which may allow the seaborne market to normalize before long.

BHP, which is the largest seaborne coking coal supplier through joint ventures in Queensland with Mitsubishi Corp. and Mitsui & Co, said Oct. 14 it had customers defer some coal shipments to China. After strong first-half trade volumes, Chinese customs data showed Australian coking coal imports this year surpassed the 2019 total in August, with a further 1.98 million mt imported in September.

"If Chinese steelmakers become pinched for steelmaking coal, they could very well continue looking to the seaborne market for more supply from regions other than Australia, and that could very well continue to push the price up," he added.

China's steel production has been running at record levels and boosting demand, and Teck estimates around 45 million-50 million mt of met coal is currently in the supply chain in China, about four weeks worth based on current demand, he said.

Shipments from Mongolia to China in September have risen to a record pace – 3.89 million mt in September, up 26.6% month on month and 8.37% year on year, based on customs data – which may be hard to maintain, while around 6 million mt of met coal is lying in vessel queues, waiting to discharge, Teck said.

Met coal output from Australia, the US, Canada and Mozambique combined is around 20 million mt lower this year on 2019, with imports from Mongolia potentially ending the year 6 million mt below 2019 even if Mongolia keeps up its current pace, Foley said.

China domestic production of coal is expected to be unchanged for 2020, at around 480 million mt, with more safety and environment inspections and compliance in the market, he added.

Teck produced 5.1 million mt of met coal in Q3, down 22% from a year earlier, and plans to produce around 5.9 million-6.9 million mt in Q4, based on company guidance. Teck maintains 26 million-27 million mt/year of met coal production capacity through four mining complexes, with more limited production flexibility to boost output, after recently closing a mine.

Teck is preparing mines and supply chains to start 2021 "quite strong," with the ability to meet full production if demand allows, Teck's senior vice president for coal, Robin Sheremeta, said on the call. The company indicated stronger demand outside China as inquiries picked up since August and blast furnaces restarted.

Teck's Q3 met coal sales averaged $102/mt FOB, or 88.9% of the Platts PLV FOB Australia index average over Q3, with low sales prices contributing to tighter margins.