As coal market starts to come back, China may punish Australia
China is displeased with Australia over its call for an investigation over the coronavirus, and there is talk of China restricting imports from the country
22 May 2020 - 11:23
byDan Murtaugh, Jing Yang de Morel and Kathy Chen
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Singapore/Shanghai/Beijing — A coal market only just rebounding from the lowest price in four years might now need to grapple with the prospect of China renewing its restrictions on Australian supplies.
Power company officials, domestic coal industry reports and analysts have raised the spectre of the country tightening imports from Australia, adding to recent tensions between the two nations over the roots of the global coronavirus pandemic.
The possible limits come as Chinese government officials are already considering targeting Australia’s exports including wine, dairy and seafood, according to people familiar with the matter, after it raised Beijing’s ire by calling for an investigation into the origins of Covid-19.
The coal rumours are bringing back memories of early last year, when China slowed customs clearance of Australian supply amid speculation that Beijing was retaliating against a ban on Chinese telecommunications giant Huawei Technologies.
“Rumours of a ban on Australian thermal coal to China have surfaced in the thermal coal market this week,’ said Rory Simington, coal market analyst at consultancy Wood Mackenzie.
In a meeting with officials from China’s top economic planner, the National Development and Reform Commission (NDRC), last week, “five major state-owned utilities were said to have been directed to stop buying new cargoes of Australian thermal coal from May 15”, Simington said.
The NDRC didn’t respond to a fax seeking comment Friday.
Beijing controls
After coal imports surged earlier this year as lockdown measures reduced mine output, speculation has grown that China is now throttling back imports to rebalance the market and stabilise prices. Beijing often uses import controls to try to keep prices in a range that is high enough for domestic miners while low enough for power generators.
“We are aware of informal quotas being imposed from time to time, locally in China. That is not a new development,” Australian finance Mminister Mathias Cormann said in a Sky TV interview on Friday.
On Tuesday, industry site MySteel.net reported “market chatter” that Chinese power plants may have been ordered to cease importing Australian coal. On Wednesday, a publication affiliated with the China Coal Transport and Distribution Association, speculated that the government may tighten Australian imports.
Meanwhile, power generators in the southern province of Guangdong have been informed that the regional customs office won’t clear cargoes from Australia, according to people with knowledge of the situation. Nobody answered calls to the central customs office in Beijing and the Guangdong regional office.
Rumours of the restrictions come as coal prices are starting to rebound after hitting the lowest level since 2016 on weak demand due to the pandemic. Futures for coal loaded in Newcastle, Australia, settled at $57.05 a tonne on Thursday, up 12% from the low on April 27.
Simington said any new restrictions are unlikely to have a major market impact. “Thermal coal imports into China have been subject to numerous restrictions, quotas and import bans in recent years, however the actual impact on trade has been comparatively minor.”
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
As coal market starts to come back, China may punish Australia
China is displeased with Australia over its call for an investigation over the coronavirus, and there is talk of China restricting imports from the country
Singapore/Shanghai/Beijing — A coal market only just rebounding from the lowest price in four years might now need to grapple with the prospect of China renewing its restrictions on Australian supplies.
Power company officials, domestic coal industry reports and analysts have raised the spectre of the country tightening imports from Australia, adding to recent tensions between the two nations over the roots of the global coronavirus pandemic.
The possible limits come as Chinese government officials are already considering targeting Australia’s exports including wine, dairy and seafood, according to people familiar with the matter, after it raised Beijing’s ire by calling for an investigation into the origins of Covid-19.
The coal rumours are bringing back memories of early last year, when China slowed customs clearance of Australian supply amid speculation that Beijing was retaliating against a ban on Chinese telecommunications giant Huawei Technologies.
“Rumours of a ban on Australian thermal coal to China have surfaced in the thermal coal market this week,’ said Rory Simington, coal market analyst at consultancy Wood Mackenzie.
In a meeting with officials from China’s top economic planner, the National Development and Reform Commission (NDRC), last week, “five major state-owned utilities were said to have been directed to stop buying new cargoes of Australian thermal coal from May 15”, Simington said.
The NDRC didn’t respond to a fax seeking comment Friday.
Beijing controls
After coal imports surged earlier this year as lockdown measures reduced mine output, speculation has grown that China is now throttling back imports to rebalance the market and stabilise prices. Beijing often uses import controls to try to keep prices in a range that is high enough for domestic miners while low enough for power generators.
“We are aware of informal quotas being imposed from time to time, locally in China. That is not a new development,” Australian finance Mminister Mathias Cormann said in a Sky TV interview on Friday.
On Tuesday, industry site MySteel.net reported “market chatter” that Chinese power plants may have been ordered to cease importing Australian coal. On Wednesday, a publication affiliated with the China Coal Transport and Distribution Association, speculated that the government may tighten Australian imports.
Meanwhile, power generators in the southern province of Guangdong have been informed that the regional customs office won’t clear cargoes from Australia, according to people with knowledge of the situation. Nobody answered calls to the central customs office in Beijing and the Guangdong regional office.
Rumours of the restrictions come as coal prices are starting to rebound after hitting the lowest level since 2016 on weak demand due to the pandemic. Futures for coal loaded in Newcastle, Australia, settled at $57.05 a tonne on Thursday, up 12% from the low on April 27.
Simington said any new restrictions are unlikely to have a major market impact. “Thermal coal imports into China have been subject to numerous restrictions, quotas and import bans in recent years, however the actual impact on trade has been comparatively minor.”
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