CHINA suspended coal imports from North Korea for a year from February 19, 2017 — a development bulker owners hope may translate into more shipments from other producers such as Australia, and help sustain the dry bulk market recovery.

The sanctions may translate to as much as a 20% increase in seaborne coal imports and are beneficial for panamaxes and capes — the larger vessel sizes — bringing this product from Australia to China. Other coal-exporting countries that could benefit are Vietnam and Russia.

However, those benefits for overseas producers are unlikely to materialise any time soon. It will be easier for Chinese steelmakers to source domestic coal to cover near-term requirements. One of the benefits of North Korean coal was its proximity, which made freight cheap.

Most of the North Korean supplies to China consist of anthracite, which is a higher-quality grade mainly used for steelmaking or in higher-value industries such as ceramics and chemical industries. The closest material to anthracite is pulverised coal injection (pci) coal, and Australian companies producing this grade include Macarthur Coal, Wesfarmers and Jellinbah.

Around 22.5m tonnes of anthracite was imported by China from neighbouring North Korea in 2016, up 14.5% year on year. The shipments were worth almost $1.2bn, Chinese customs data shows. This made North Korea the fourth-largest exporter to China after Australia at 70.5m tonnes, Indonesia at 39.1m tonnes, and Mongolia at 26.3m tonnes.

Downplaying the potential for more coal imports from elsewhere, a few analysts even warned the move could hurt the freight market, even though seaborne trade in coal is forecast to improve this year.

“In China, they use North Korean anthracite for steelmaking only because it is cheap. They would not otherwise use anthracite as it is more expensive and therefore more inefficient than using standard coking coal,” said Banchero Costa head of research Ralph Leszczynski.

“If they cannot import North Korean anthracite, for most uses they would just go back to using standard domestic or imported coking coal and thermal coal,” he asserted.

If China adheres to the restriction for the rest of the year, there is a possibility that Chinese importers will face a shortage of about 20m tonnes of coal, assuming demand from the steel and other sectors remains steady. However, with the recent recovery in coal prices, domestic coal production in China is now expected to rebound a little as the New Year holidays are over and winter is coming to an end, Mr Leszczynski added.

China is targeting production of 3.65bn tonnes this year, the National Energy Administration said in a report on Friday. “Therefore, probably the shortfall in Korean coal will simply be replaced by slightly higher domestic Chinese coal production, and the result will be neutral on ‘mainstream’ imports from Australia and Indonesia,” he conceded.

Certainly, China will seek the higher grade of coal from Australia but it is unlikely the nation could fill up the gap in the short term and Indonesia would not be considered because of the high ash content coal it produces.

So it is a worrisome scenario for bulker owners if China is able to substitute North Korean material with imports from neighbouring Mongolia, as the land-locked supplier sells its coal well below the seaborne price.

According to mining.com, China paid $63 per tonne for Mongolian coking coal in December last year as compared with the seaborne price, which was averaging above $230 per tonne.

The Chinese Commerce Ministry suspended coal imports in accordance with the United Nations National Security Council resolution that targets North Korea’s commercial trade to curb the country’s nuclear and ballistic missile programme.

The move was preceded by a North Korean intermediate-range ballistic missile test on February 12 this year and the alleged assassination of Kim Jong-nam, the half-brother of North Korean leader Kim Jong-un.