China has reportedly ended the two-and-a-half-year ban on Australian coal imports by allowing officials in the southern province of Guangdong to clear Australian cargoes aboard ships waiting to unload.
The Wall Street Journal and other outlets revealed the decision – the origin and shipper(s) of the coal were not named in the reports.
The reports came a week after China’s state planner allowed three central government-backed utilities and its top steelmaker to resume coal imports from Australia.
China had used millions of tonnes of Australian coal stuck in ports in the great power crisis of 2021 and in early 2022 to alleviate shortages while domestic mines boosted production.
China never officially acknowledged the use of that stranded coal.
Now apparently Australian thermal and coking coal will be allowed to be imported by steelmakers and power companies – especially in Guangdong and other coastal provinces in the south of the country.
China’s 2022 trade data on Friday showed the country imported 293.2 million tonnes of coal last year, down 9.2% from 2021 as domestic production jumped to record levels.
On those figures there doesn’t seem to be any reason to free up Australian coal imports (apart from the political nature of the decision) but traders and analysts point out that Australian coal is more than competitive on a price (and especially quality basis) in coastal provinces, such as Guangdong.
The reasons for China’s relaxation of its previously hard-line ban on Australian coal imports have been emerging in local and western media reports, especially concerning the reliability and stability of supplies in the current winter heating season.
The easing has come despite Chinese coal companies meeting government exhortations to boost production – they have and output in 2022 looks like ending up at record levels above 4.4 billion tonnes according to reports from Bloomberg. The Chinese government which put the expected total at 4.45 billion tonnes in a statement in late December.
Reuters pointed to the way the sanctions on Russian coal exports boosted coal prices in the Asian basin where Indonesia and Australia are the major exporters (even though China and India are major producers they still need to import tens of millions of tonnes of coal a year). But on a quality basis, Indonesian and Mongolian coal has been getting too expensive with Australian coal banned.
Despite Chinese bravado about getting more coal from Russia at cheaper prices, the volumes have not been there (China imported upwards of 80 million tonnes of Australian coking and thermal coal before the ban), further pressuring local suppliers to improve quality and price competitiveness.
“Chinese utilities and steelmakers will now have access to better quality Australian coal, while Australia, which used to be the second-largest coal supplier to China, could recover some of its market share lost to suppliers including Russia and Mongolia,” Reuters pointed out.
China’s state planner last week revealed an easing of the ban by allowing three central government-backed utilities and its top steelmaker to resume coal imports from Australia.
Among them, China Energy Investment Corp has reportedly placed an order to import Australian coal.
China’s need for more coal – demand could be up 2% this year according to some western analysts (which assumes a stronger year economically and higher demand for electricity) is a factor in the relaxing of the ban on Australian coal.
That could be nearly 100 million tonnes of extra coal by the end of this year. Analysts say it will be cheaper to import this coal from Australia than to try and boost the already strained domestic industry.
That would require a lift in the unofficial quota for coal imports of 300 million tonnes a year but it is likely Australian coal will slowly replace Russian and Mongolian coal.
According to Reuters reports there has been rising anxiety in the Chinese government about the security of energy supplies this year and that anxiousness has been made worse by the surge in Covid cases.
Chinese media reports suggest that a rising toll of Covid cases in major coal-producing areas has cut production at a time when the central government is pressuring miners to produce as much as possible.
The Chinese government clearly wants to avoid a repeat of nationwide blackouts from coal shortage in the late summer and early autumn of 2021.
China’s 80 million tonnes of Australian imports consisted of more than 30 million tonnes of coking coal (from the likes of BHP, Whitehaven, Peabody and South 32) and nearly 50 million tonnes of thermal coal (From BHP, Glencore, Whitehaven, Yancoal and a host of smaller companies).
Analysts say China has struggled to replace the higher quality Australian coking and thermal coal from its own mines and from imports from Indonesia, Mongolia and Russia. That has forced more locally produced coal to be used, lifting costs for power companies and steelmakers.
“The resumption of trade is no doubt good news for China to solve the problem of high-quality coal shortage,” said analysts from COFCO Futures in a note, according to a report from Reuters.
Australian thermal coal with an energy content of 5,500 kilocalories was being offered at $US141 a tonne on a free-on-board basis, up about $US5 over last week, according to Reuters.
The price of premium Australian thermal coal – 6,300 kilocalories, priced via the Newcastle thermal coal exchange, was more than $US340 a tonne late last week – down 10% since the start of the year.
This coal is predominantly ordered and used by thermal coal consumers in Japan, Taiwan and South Korea in electricity generation and produces less pollution and Co2.
