The argument China's coal exports will overshadow imports is predicated largely on the mine consolidation process of the past two years leading to an exponential increase in production and at lower costs. There has also been a massive injection of state funds to improve rail infrastructure for the industry which will undoubtedly also help to further reduce costs.
This is particularly true for coking coal. There is around 1000km of additional or improved rail line in the pipeline connecting the coking coal rich provinces of Shanxi and Shaanxi with ports in Tianjin and Jintang.
CLSA in its January report "No Longer Craving Coal", which looks at forecast Chinese demand and pricing, indicates the rail improvements will be a key factor in the region dropping down the cost-curve.
"This prompts us to cut our coking coal price forecasts by up to 15%. With Chinese coal supply no longer the most costly, this will pressure supply growth from higher-cost locations, particularly Mongolia."
Ah, the Mongolian factor. Plentiful and cheap Mongolian coking coal had been tipped as the force which would slowly but surely push seaborne imports out of the Chinese market. But Mongolia has proven to be recalcitrant when it comes to dealing with the Chinese and foreign investors creating what many analysts believe are significant sovereign risks to its nascent coal industry.
As for suppliers such as Australia, freight disadvantage and high production (notably labour) costs continue to drive the country up the cost curve.
Despite these factors, CLSA has forecast a growth in coking coal imports into China this year and next.
"As steel demand recovers in 2013 globally...we expect to see a recovery in coking coal prices through the year, reaching US$180/t in 2H13," Roper said in his report. "However, plentiful supply from China's domestic miners will limit the upside."
And this is the point for those who do not believe China is on the threshold of again becoming a net exporter of coal; a scenario not seen since 2008. Indeed China's appetite for imported coking coal has been voracious.
In 2007 China imported a mere 6.29Mt of coking coal. This increased marginally in 2008 to 6.9Mt before exploding to 34.49Mt the following year. By 2010, China's coking coal imports were 42.27Mt, increasing to 44.7Mt in 2011 but falling to 34.47Mt last year.
"China has achieved a great deal through consolidation,"
"They need the coal themselves and they will not ever become a net exporter again. Only if they become desperate for revenue will they allow exports to increase in any meaningful way. Then they may do some deals with Japan and Korea or even India, but this alone will not see them become net exporters."
Another analyst said: "So many people are looking to China to come and save the day with massive orders of coking coal to help strengthen the price. The fact is, China's steel industry is in a slump; the world's steel industry is in a slump.
"But China has shown it will always buy coal, coking or thermal, when the price is right. And while timelines for a lot of new coking coal projects to come online globally have been pushed out into the medium term and [with] so much competition in the market, it is crazy to be talking about whether China will again become a net exporter.
"China will do what it has always done – look after itself and for them that means grandfathering their coal resources at some point. I think the real question here should be how much will China take, not how much will it sell."
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