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Highlights

Chinese mills fear coal import curbs will squeeze steel margins

Iron ore unlikely to be affected as China reliant on Australian imports

Melbourne — Chinese and international steel market participants do not expect Australian iron ore to be subject to import restrictions such as those impacting Chinese imports of Australian metallurgical and thermal coal.

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S&P Global Platts spoke to 10 companies on Oct. 14 to gauge the feeling in the market about the implications of the coal import measures, which Platts had reported on Oct. 9.

The overriding view was that it would be impossible to restrict imports of Australian iron ore given the country supplies more than 60% of China's iron ore requirements.

China imports about 80% of its total iron ore needs compared with some 20% in the case of coking coal, market sources estimated. China accounts for just a little more than 20% of Australia's total coking coal exports.

Chinese mills expressed concerns that steel margins would come under threat as the price of coking coal and coke would increase if they were obliged to source more domestically.

This would be compounded by efforts to reduce production in Shanxi province, one of China's largest coal production hubs, as a result of coal washing capacity being almost halved this year.

A couple of mills said they were hurriedly trying to source coking coal from domestic producers to make up for the shortfall from the import restrictions.

One mill official said the company mainly sourced coking coal from Shanxi, Shaanxi and Henan provinces. He said the import restrictions on Australian coal had been "around for some time but it seems more serious now."

Several mills agreed that another round of Chinese coke price increases was likely in the near term. This would make iron ore lump even less appealing as it requires coke to break it down for steelmaking purposes.

"Tight coal supply due to import restrictions and Shanxi de-capacity measures will lift up coke prices. Some mills are likely to carry out maintenance works if profits are squeezed a lot more," a mill official in northern China said.

All respondents said there would be no possibility of restricting Australian iron ore imports as it was China's major iron ore supplier and steel production was very high this year.

"Iron ore imports from Australia won't be prohibited because if they were, prices would see a huge increase, which is bad news for mills," one mill said.

"Australian iron ore cannot be restricted because it that happened prices will be above $200/mt," a trading company said.