The ASX looks set to wobble today after China formally blocked Australia’s multi-billion dollar coal trade after months of unofficial restrictions and contrived barriers were formalised into an outright ban by the country’s economic cabinet.
Along with a fall in iron ore prices, news of the ban saw ASX futures trading weaken from a small rise in Australia yesterday to small dip overnight, then rise early today, before a 15 point slip around 7.45 am set up a weak start this morning.
Chinese state media said the banning decision was made by China’s National Development and Reform Commission at a meeting with 10 Chinese power companies on Saturday and reported by state media on Monday.
It means imports of Australian coal will be blocked indefinitely while China ramps up imports from Mongolia, Indonesia and Russia, and expands local production.
These countries have already had trouble supply coal – coking for the steel industry and thermal coal for the power and cement industries – sending the price of thermal coal in particular to a 50% premium for the Australian coal, and a massive premium for coking coal as well, placing further pressure on already whingeing steel companies paying multi-year high prices for iron ore.
On Monday iron ore prices fell 3.6% to $US157.37 for 62% Fe fines delivered to northern China after traders panicked about squealing by the Chinese steel industry association at a meeting on the weekend. The price of 65% Fe fines from Brazil also fell – back under $US170 a tonne to $US167 a tonne.
The steelmakers association demanded China’s markets regulator examine the trading in iron ore (because the price had risen too high in CISA’s opinion). They have not complained about the rising coal price because that would embarrass the government.
Listed coal miners in the gun today include BHP, Whitehaven Coal, New Hope, White Energy, Coronado Resources, Terracom, Australian Eastern Resources and irony of ironies, the Chinese controlled Yan Coal which is the second largest listed coal group.
Those companies not listed here but elsewhere include the struggling Peabody Energy of the US, Anglo American of the UK and South Africa and Glencore which stands to benefits from its mines outside Australia. Glencore hasn’t been sending Australian coal to China now for weeks.
China’s international state media outlet, The Global Times, reported the commission had given approval to power plants to import coal “without clearance restrictions, except for Australia, in a bid to stabilise coal purchase prices”.
China last week lifted its 2021 import quotas for coal by around 20 million tonnes – to a maximum of 320 million.
Australia supplied 60% of China’s annual quota of around 300 million tonnes – up to the second half of this year and coal industry sources say Mongolia, Russia, the US and Indonesia will not be able to fill the gap immediately
China’s spot coal thermal prices have risen above $US90.82 ($120.17) per tonne compared to $US62.82 per tonne for Australian thermal coal from newcastle or Queensland ports as it restricts imports to protect local producers.
Some 80 ships remain off the Chinese coast loaded with Australian coal and can’t unload. No ships have sailed for China from Newcastle or Queensland for the best part of a month.
The ASX has not queried these coal companies about the position of their most important contracts – today might be time for some sort of stocktake because the shares in these companies are not trading in an informed situation.
