Chinese traders seek to pass through import tax to Australian shippers
By Deepak Kannan, Mike Cooper, Cecilia Quiambao, Mia Corazon Aureus
October 28, 2014 - Chinese traders paying the Asian country's new import tax on Australian cargoes of bituminous thermal coal are attempting to pass on the expense to coal shippers in Australia, resulting in severe downward pressure on FOB prices, traders said October 16.
The traders' end-user customers at power plants in China are refusing to pay higher prices to cover the added cost of the import tax that took effect mid-week at a rate of 6% for Australian imports, according to market sources.
"End-users will not be paying any tax at the moment," said one trader in Singapore.
The tax effectively added $3.85/mt to the $64.30/mt delivered price for Australian 5,500 kcal/kg NAR coal in October 16 trade, thereby increasing the landed cost of this origin to Chinese buyers to 68.15/mt, said traders.
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"The import price is charged on a CFR price basis," said the trader, adding he had seen an offer for a November arrival 5,500 kcal/kg NAR Australian coal cargo at $64.50/mt CFR South China, and $1 lower than levels at the start of the trading week.
Even with the addition of the import tax, Australian 5,500 kcal/kg NAR high-ash cargoes are still 75 cents cheaper than comparable calorific value Chinese domestic thermal coal trading at $67.40/mt FOB Qinhuangdao excluding 17% VAT, according to Platts prices.
A trader in Singapore said he had turned down an offer for a mid-November loading Capesize cargo of Australian 5,500 kcal/kg NAR at $65/mt CFR because of the import tax.
"If there had been no 6% import tax, we would consider the offer. But given the tax, the price is too high," he said.
FOB prices at Australia's Newcastle trading hub were pushed lower October 16, said traders.
Offers were heard at $53.75/mt FOB Newcastle for November loading cargoes of 5,500 kcal/kg NAR coal, and at $54/mt for December delivery, through globalCOAL. Buying interest had retreated to $52/mt FOB.
Indonesian material in demand
Indonesian coal is exempt from the import tax in China, and was attracting more buyers.
"Indonesian thermal coal is in demand, as Shenhua's Yuan 500/mt sales price for its 5,500 kcal/kg NAR domestic coal at Yuan 500/mt FOB Qinhuangdao nets back to $69.60/mt," said a trader.
A November-delivery Panamax cargo of 5,500 kcal/kg NAR Indonesian coal was heard offered at $61/mt FOB, and with freight of $6/mt, would be equivalent to $67/mt CFR South China, said a trader in Guangdong.
"The price is not high, given the increase in domestic prices and its exemption from the import tax," said the trader.
"We would like to book some 4,700 kcal/kg NAR Indonesian thermal coal at a price no higher than $56/mt CFR," a Shandong-based trader said.
At Qinhuangdao port traders raised their offer prices for domestic coal cargoes, though buyers lagged in their bidding prices, leaving a fair sized gap between bid and offer prices in Asia trade.
For 5,500 kcal/kg NAR domestic coal bids were heard at Yuan 480/mt FOB Qinhuangdao to sellers' prices at Yuan 490-495/mt, and a trade was heard for this grade at Yuan 480/mt.
While for 5,000 kcal/kg product bids were heard as low as Yuan 410-415/mt to offers at Yuan 425-430/mt for standard specification Shanxi coal, said market sources.
"The price hikes of Shenhua and China National Coal Group have yet to be accepted by the market," a Beijing-based trader said.
At the close of Asia trade, the Platts/Fenwei China Coal Index (CCI 1) for domestic thermal coal traded at Qinhuangdao port was assessed at Yuan 484/mt inclusive of VAT, and Yuan 2 higher than October 15's assessment.
The Platts/Fenwei CCI 2 price for domestic 5,000 kcal/kg NAR thermal coal was Yuan 424.50/mt FOB, and up Yuan 2.50 on-day.
The CFR South China CCI 7 price for imported cargoes of 4,700 kcal/kg NAR thermal coal was assessed at $56.75/mt, and 5 cents higher on-day.
The CCI 8 price for 5,500 kcal/kg NAR thermal coal was assessed at $64.30/mt, excluding Chinese VAT, and down 30 cents on-day, and $1 lower than at the start of the trading week.
Platts assessed the FOB price of Newcastle 5,500 kcal/kg NAR thermal coal with typical ash of 20% at $53.80/mt, and steady on-day.
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