China’s continuing power shortage has forced the Xi Jinping government to blink and start unloading coal from Australia on ships held up by the country’s yearlong ban.
The country is gripped by a growing energy crisis because of a shortage of coal – both domestic and imports as well as a shortage of gas, especially LNG from Australia and the Middle East suppliers.
The shortage saw rolling black outs across 13 provinces last week ahead of the seven-day National Day holiday break which saw wide sections of industry and business closed which in turn took the pressure off power supplies and allowed suppliers time to rebuild stocks.
But with the holiday ending Thursday, there’s fears the shortages will quickly re-appear, adding to the pressures on the economy from the faltering property sector where China Evergrande, the major developer is on its last legs and two smaller developers have failed to make multi-million dollar debt repayments this week and had their credit ratings cut to default or near default levels by Fitch and S&P Global.
The shortages and desperate demand from Chinese power companies have boosted thermal coal prices past the $US200 a tonne level (for Newcastle type steaming coal, the global standard) – that’s up 400% in 15 months.
Coking coal prices are up a similar amount to more than $US500 -$US600 a tonne in China for prime hard metallurgical coal (similar to what BHP had shipped into China from Queensland).
This price surge when combined with the coal and gas shortages haven crunched the finances of Chinese private and state owned coal companies (domestic coal prices are set by the government) at the same time as the government has been forcing coal users and other industries emitting large amounts of carbon, to slash production to reduce their pollution.
This in turn has placed numerous industries in a financial bind which the power shortages, rationing and blackouts have exacerbated.
The yearlong ban on Australian coal has worsened the shortage and blackouts because the thermal coal has, in the past, been used as a top up for supplies in coastal and southeastern provinces, especially Guangdong, the manufacturing heartland of the country.
The coking coal from Australia has forced steel mills to use dirtier domestic coal or try to get as much high-grade coal from Canada, Mongolia and Russia, with varying success.
Guangdong has seen some of the worst power blackouts – second only to a trio of northeastern provinces. Guangdong’s provincial government has been forced to ration power to maintain domestic supplies and last weekend increased the pricing differential on business, forcing them to pay up to 25% more for their electricity compared to homes.
Now there are the reports that a desperate government has been forced to raid the Australian coal stranded offshore on a number of ships (There were 70 at one stage earlier this year).
The Financial Times and Reuters both confirmed the move on Tuesday in separate reports.
Reuters reported that “China is releasing Australian coal from bonded storage, despite a nearly year-long unofficial import ban on the fuel, as it scrambles to ease a national power crunch stemming from a coal shortage, traders familiar with the matter said.”
And the FT said “China has started unloading a small number of Australian coal shipments despite an unofficial import ban, analysts said, in a move underscoring the intensity of the power crunch facing the world’s second-largest economy.”
An estimated 450,000 tonnes of Australian coal has been unloaded, while the FT said a ship watching service said five vessels with 383,000 tonnes of Australian coal had been brought into berths and unloaded in late September.
While the coal could have been transhipped, the FT and Reuters indicated that was unlikely because Chinese customs had cleared the coal to move into China. So much for Chinese claims of quality problems with the coal, which was one weak excuse advanced in 2020.
Australia shipped 50 million tonnes of coal to China in 2018 and exports had been running at 35 million tonnes and heading for a record in 2020 until the ban was imposed.
That has left a hole in China’s imports which totalled 198 million tonnes of thermal and coking coal in the January-August period of this year against 220 million tonnes for the same period of 2020 (up to when the ban was slapped on Australian coal).
Since then there’s been no imports of either steaming or coking coal (bound for the steel industry). Supplies from China’s main supplier, Indonesia have fallen short because of weather and transportation problems while imports from Mongolia have been disrupted from Covid and shipments from Russia have fallen short.
Imports from Canada and the US have also been disrupted at the mine end of the chain while ship shortages have also impacted supplies.
