A bulldozer pushes coal onto a conveyor belt at the Jiangyou Power Plant on January 28, 2022 in Jiangyou, Mianyang City, China’s Sichuan Province.
Liu Zhongjun | China News Service | Getty Images
China has finished clearing a stockpile of Australian coal worth more than $1 billion, Chinese customs data show.
But analysts say Chinese coal buyers are unlikely to start buying new supplies of Australian coal anytime soon. This is because coal stocks are building, domestic production is higher and there is now higher supply from exporters such as Russia, bought at a discount.
Since October, Beijing has been unloading cargoes of Australian coal stranded outside Chinese ports after the world’s second-largest economy suffered one of its worst blackouts in history.
Blackouts swept across China after power plants cut power output to prevent losses as coal prices soared.
In 2020, China imposed restrictions on the export of Australian coal and other goods following a diplomatic row between the two countries. Many ships bound for China were stranded off the coast of China and were unable to dock.
At the height of the crisis, more than 50 ships could be seen sitting outside ports, according to tracking by commodity intelligence group Kpler and Bloomberg.
By March, however, more than 14 million tons of coal worth about $1.3 billion had been unloaded and released, Chinese customs data showed.
Over 8 million tons is coking coal, which is essential for steel production, while about 6 million tons is thermal coal, which generates electricity.
Since then, there have been no further imports of Australian coal, according to Chinese customs.
Despite the thaw in relations between the two nations, analysts say ample domestic coal reserves and lower demand for coal – particularly in China’s steel industry – mean it is less likely that China will need to resume purchases of Australian coal. in the short term.
Due to the slowdown in the Chinese economy caused by the Covid lockdown, demand for steel has also been weaker in recent months.
“There may be some demand for very high quality [Australian] coking coal in the medium term and certainly in the longer term, but right now I’m not sure the Chinese would want to pay the current prices given how weak the steel market and steel margins are,” the commodity strategist at Astris Advisory KK Japan Ian Roper I said.
Trade battle between Australia and China
While Chinese restrictions have reduced some trade between the two countries, most of their A$250 billion ($172.35 billion) bilateral trade has remained intact.
There have been some recent signs of a thaw in relations between the two countries following the election of a new Australian government, raising hopes among exporters and importers that normal trade may resume.
After the Australian election, Chinese Premier Li Keqiang congratulated Australia’s new Prime Minister, Anthony Albanese, who confirmed the announcement with a return note.
The two countries’ defense ministers also met on the sidelines of the Shangri-La Dialogue in Singapore earlier this month.
Can Australia and China rebuild trade ties?
Meanwhile, both markets adjusted to China’s restrictions on Australian coal imports.
Australia has found new buyers and is shipping coal otherwise destined for China to other countries.
Meanwhile, China is seeking increased supplies from producers such as Mongolia and Indonesia and is now using coal from little-used exporters such as Colombia and South Africa and buying cheap coal from Russia.
There may be some demand for very high quality coking coal in the medium term and certainly in the longer term, but right now I’m not sure the Chinese would be willing to pay the current prices given how weak the steel market is and steel margins.
Ian Roper
Astris Advisory KK Japan
China has also increased its domestic coal production since the blackout crisis and increased domestic reserves.
The latest data from China’s National Bureau of Statistics showed that between January and May, raw coal production rose 10.4 percent year-on-year to 1.81 billion tons, while imports fell to about 96 million tons, down from 13, 6% compared to a year ago.
China’s steel production has fallen in recent months due to a slowdown in construction activity as the Covid lockdown spread. As a result, coking coal stocks increased.
In the long term, Beijing, which has pledged to cut emissions, plans to cut steel production to meet its 2030 and 2060 targets, thereby reducing demand for coal.
In other words, the sector is also changing – especially given the global drive towards climate change, said Diane Tipping, chair of the Export Council of Australia.
And even if demand from China returns, it may not be possible for Australia to sell to China if alternative markets are found and new contracts are made to supply other buyers, Tipping added.
However, at the right price, Australian exporters would still be motivated to sell to China when driven by market forces, Tipping said.
Attila Widnell, managing director of trade consultancy Navigate Commodities, agreed.
The sales will happen when there are sufficient trade benefits for both sides, he said.
“China is likely to keep an eye on its own low- to mid-range low-end Mongolian and Russian coking coal, while keeping an eye on more attractive prices for premium Australian material,” Widnell said.
“Given the lack of affordable premium volumes available to China, this may encourage the respective administrations to thaw relations sooner rather than later.”
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