Rejected coal cargoes renew uncertainty in China

OREANDA-NEWS. Chinese customs bureaus have stalled Australian and South African coal deliveries that exceed fluorine limits under the country's new quality regulations.

Chinese customs have stopped one shipment of high-ash Australian coal at eastern Ningbo's Beilun port and a separate cargo of South African coal at southern Guangxi's Fangcheng port over the past two weeks, according to market participants with exposure to China's import market — although this could not be confirmed directly with the counterparties or with Chinese customs.

The Australian 5,500 kcal/kg thermal coal was sold to a Chinese cement producer and is understood to have been rejected by the local inspection and quarantine bureau. The cargo was later redirected to a buyer in Taiwan, the market participants said. The South African 4,800 kcal/kg coal was sold to a Chinese trader and is undergoing a third round of inspections by authorities after failing the first two checks.

China's main economic planning agency the NDRC has mandated that coal imports must meet quality standards for five trace substances — with mercury content of less than 0.6 microgram/gram (µg/g), arsenic below 80µg/g, phosphorous below 0.15pc, chlorine below 0.3pc and fluorine below 200µg/g. These are in addition to restrictions on ash and sulphur content of a maximum of 40pc and 3pc, respectively. The quality regulations took effect on 1 January and have raised waiting times, which have in turn increased demurrage costs and the risk of rejection at ports.

The rejections are likely to generate a fresh wave of concerns in the Chinese import market. Buyers will take responsibility for the coal, because they are likely to have bought the cargoes on a fob basis. And while they have sought to minimise risks by requiring suppliers to offer guarantees on the five trace elements on a loading or discharge port basis, China relies on its national standards for the quality checks rather than the widely used international ISO and ASTM standards.

Many of the major testing agencies in Australia and South Africa do not offer checks based on the Chinese standards, although tests for China's standards are available in Indonesia with costs of 20-25?/t already factored into prices, one trader said. In addition, the longer shipping journey to China from Australia and South Africa will probably result in some coal quality degradation.

China's first-quarter thermal coal imports dropped by 46pc from a year earlier to 33.19mn t. Imports of mainly Australian bituminous thermal coal fell by 29.1pc to 10.19mn t in January-March compared with same period last year. China has imported no South African thermal coal so far this year, compared with 5.16mn t of mainly bituminous coal last year, according to Chinese customs data. South Africa accounted for 2.6pc of total thermal coal imports in 2014, the customs data show.