Miners hopeful of end to China’s two-year Australian coal ban
Coal miners are cautiously optimistic that Beijing could be preparing to lift its unofficial two-year ban on Australian coal as Chinese state-owned enterprises begin making “initial inquiries” about future shipments.
While the nation’s coal producers have not received official word about any change to China’s policy towards allowing Australian cargoes, industry insiders on Thursday said officials from China’s steel and electricity sectors had made contact with local suppliers.
Australian coal prices are booming as demand recovers sharply around the world.Credit:Peter Davis
“This reflects a turnaround in sentiment,” said one source with knowledge of the matter but not authorised to speak publicly. “We are keeping a close eye on developments.”
Still, there would likely be a “long way to go” before any supply contracts were struck. “It may take a while,” he added.
International resources consultancy Wood Mackenzie, meanwhile, said it understood that China had moved to restart Australian coal imports, although it was not clear when. Principal analyst for Asia-Pacific coal research, Rory Simington, said the easing of China’s ban would only see small volumes traded initially.
“It will take some time for the trade to resume,” Simington said. “We do not expect many Australian coal shipments to China in the first quarter of 2023 and the trade volume is likely to be limited overall this year at least.”
The Minerals Council of Australia, an industry group representing large coal shippers including BHP, Glencore and New Hope, said it was “cautiously optimistic” at reports that China’s long-running ban was being reconsidered. Bloomberg News first reported this week that China’s National Development and Reform Commission had held talks on proposals to allow four major importers to recommence trade.
“The normalisation of trade relationships is a positive for the industry,” a Minerals Council spokesman said.
“We will wait and see what happens … but we are also committed to the existing customer bases that we have.”
A deterioration of diplomatic ties between Australia and its biggest trading partner in 2020 led to China slapping hefty tariffs on a range of Australian goods, including wine and barley, while an outright ban on Australian coal left dozens of vessels stranded off the coastline unable to dock.
At the time, China’s coal ban added to the financial pain facing exporters of coal and other fossil fuels, which had been hit hard by the shock of the COVID-19 pandemic wiping out demand for energy and sending commodity prices plunging. However, the ban ultimately forced global trade flows to realign, leading to Australian producers sending more shipments from local shores to other markets, including South-East Asia and India.
Coal prices have since surged to near-record levels as Western nations shun Russian cargoes to starve Moscow of the revenue it needs to fund the war in Ukraine, intensifying competition for Australian shipments.
The nation’s combined coal exports, including metallurgical and thermal coal, are now forecast to earn $132 billion in 2022-23, overtaking iron ore as Australia’s single most lucrative export.
Despite accelerating pledges among countries to wean themselves off the emissions-intensive fossil fuel, the International Energy Agency last month declared world coal use was likely to have risen 1.2 per cent in 2022 to a record high.
However, the longer-term outlook for Australia’s coal industry remains deeply uncertain. Power generation from renewable energy continues to rise, large resources companies are increasingly divesting or announcing closures of their coal assets, and financial institutions are pledging not to make new investments in the sector, citing concerns about its future demand and global warming.
Australia’s Department of Foreign Affairs and Trade on Thursday said it was aware of reports that Chinese importers may purchase Australian coal this year. “It has been the Australian government’s consistent view that the resumption of normal trade across the board between Australia and China would be in both countries’ best interest. That is true also of coal,” a DFAT spokesperson said. “Meanwhile, the Australian coal industry has been highly successful in finding alternative markets.”
The potential easing of the Australian coal ban could mean Chinese steel mills will again source high-quality Australian metallurgical coal to use in their steel-making furnaces, pushing coal from the US and Canada back to their original markets.
However, analysts at investment bank Morgan Stanley said the potential impact on thermal coal – the type of coal used to generate electricity – may be more muted while prices remain at high levels.
“We do question whether the impact on the thermal coal market is going to be significant and whether trade flows will revert meaningfully,” Morgan Stanley’s Marius van Straaten said. “China’s utilities appear happy to import relatively cheap lower-quality [calorific value] Indonesian coal, as well as heavily discounted Russian cargoes, and utilities might be reluctant to pay up for more expensive Australian thermal coal.”
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