Prices paid by China for imports of the two main types of coal — heating and steelmaking — have jumped by at least 40 per cent since low points earlier this year. Picture: AFP
8:44PM DECEMBER 7, 2020
New trade figures strongly suggest China’s bans on Australian coal have backfired economically, with coal import prices surging.
Prices paid by China for imports of the two main types of coal — heating and steelmaking — have jumped by at least 40 per cent since low points earlier this year.
Paradoxically, the informal bans — issued verbally — on Australian coal coincided with a string of drivers that were set to push coal prices higher in any event. Cutting out Australian supplies has turbocharged price rises.
Some months before current trade tensions escalated, China introduced a plan to reduce the amount of coal it imports from all countries. However, new trade data for October shows steelmaking coal imports from Australia fell 21 per cent year on year, while imports from the rest of the world rose.
Overall, China’s coal imports are down to a third of levels struck earlier this year, but imports from Australia are down to one-tenth of normal levels.
The unwanted price rise in a key commodity for China just as the country enters the northern hemisphere winter should be a clear warning to Beijing that any wider plan to cut iron ore would also backfire economically: China has a higher dependence on Australian iron ore than it has on Australian coal.
Coal prices have also moved higher inside China in recent days on the back of a mining catastrophe where 23 miners were reported killed in an accident at Chongqing earlier this month.
Major industrial accidents push prices higher inside spot commodity markets. The iron ore price is still reflecting the Samarco dam disaster in Brazil five years ago.
China’s coal comeuppance now puts Beijing policymakers in a tight bind: if China moves to lift coal imports from other suppliers (Indonesia, Canada, Mongolia), it will continue to pay higher prices as commodity markets generally participate in a COVID-19 recovery bounce.
If China returns to the level of Australian imports it was managing earlier this year, the move will indicate either a softening of trade tensions or a pragmatic acceptance of Australia’s pivotal position in the coal market.
“Current China policy towards Australian coal has a shelf life,” says Vivek Dhar, director of mining and commodities research at Commonwealth Bank. “At some stage over the next 12 months the economics will stand up.”
Australian coal prices are separate to the prices paid in China for coal imports. Sidelined by the informal China bans, Australian steelmaking coal has fallen sharply in recent months, while heating coal is also down year on year though it has begun to recover in recent weeks.
The surprise twist in both coal trade dynamics and the sudden lift in prices complicate efforts by the energy industry to move away from coal — higher global prices could ultimately mean that previously unattractive mining deposits are reassessed. In recent times, Rio Tinto has moved out of coal, while BHP has begun efforts to distance itself from the market.
