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After being loaded with coal, DZ Weihai slid into the turquoise waters off the coast of Australia this month and started a 14-day trip to the port of Yangpu in southern China. How long the ship waits to unload its cargo upon arrival is unknown.
Despite the Chinese ban on coal imports from Australia that left about 70 ships, 1,400 sailors and 6.4 million tonnes of fuel in offshore limbo, some ships continue to make the voyage. While the restrained loads and the crew are stuck between authorities who won’t let them download and buyers who won’t let them go, perhaps the most curious of all is what is generating additional shipments.
The ships DZ Weihai and Jin Lang en route to China.
While mundane issues like contractual commitments play a role, traders are likely to be motivated by a mix of hope and money. China is considering accepting cargoes that arrived before the ban, increasing the restrictions of optimism, can be facilitated. If they do, unexpected luck awaits, as the difference between Chinese and Australian coal prices has widened to a record high.
“Chinese buyers with held loads are reluctant to resell them because the cost of these charges is much lower than domestic prices,” said Rory Simington, principal analyst at Wood Mackenzie Ltd. “Even though the charges are not released by six more months, the cost including demurrage would still be well below where domestic prices are currently. “
A single load of 100,000 tonnes of metallurgical coal from Australia would cost the trader around US $ 14 million, based on sea prices, not including transportation costs. The same amount purchased domestically would be about $ 28 million. The cost for failure to unload a bulk carrier, known as a demurrage fee, is between $ 13,000 and $ 17,000 per day.
The Australian ban has never been publicly recognized by Beijing, making it difficult to determine its start date. Chinese power plants and steel mills were verbally instructed to stop using the fuel in mid-October. Authorities also ordered traders to suspend purchases of a number of the country’s commodities, including coal, as of November 6.
China’s customs administration did not immediately respond to a fax asking for comment.
Since October 15, 20 ships have carried coal in Australia and signaled destinations in China, including DZ Weihai this month, according to shipping data compiled by Bloomberg. Some of them, like Rixta Oldendorff, diverted to other countries in the middle of the journey. But at least 11 have joined the larger flotilla and are waiting outside Chinese ports to unload.
To be sure, China’s ban on Australian coal has drastically changed global commodity flows: buyers from the continent ordered several shipments of coal from South Africa in December and increased imports from Indonesia and Russia. The value of Chinese Australian coal purchases fell 16% last year, to $ 7.9 billion.
Left Hanging
About 6.4 million tons of Australian coal are trapped off the coast of China
Source: Kpler
Still, China is considering accepting some Australian coal shipments that arrived before the import ban came into force, said a person familiar with the situation this month. The deliberations are at an early stage and any decision would need the approval of senior leaders. The broader ban on Australian coal remains in place and, ideally, the cargo would be resold to buyers in other countries, the person said.
“It is interesting to see new coal deals recently made, despite no clear sign that China’s ban on Australian imports will be lifted soon,” said Monica Zhu, a solid bulk analyst at Kpler. “These are activities of individual traders and may not represent the main market.”
– With the help of Dan Murtaugh, Matt Turner, Winnie Zhu and Serene Cheong