China’s ban on Australian coal to ease as power crisis hits

China is battling an energy squeeze, partly due to skyrocketing thermal coal prices.

• PERRY WILLIAMS

  SENIOR BUSINESS WRITER

  @perrybwilliams ‏

  
• 6:50PM OCTOBER 10, 2021
• 34 COMMENTS

China will resort to temporarily easing a ban on taking Australian thermal coal shipments as the nation faces its biggest electricity crisis in two decades with power rationing threatening economic growth, consultancy Wood Mackenzie said.

Beijing’s desperation for fuel supplies has already led to the unloading of a small number of Australian coal cargoes stranded outside its ports and the balance of warehoused supplies from Australian producers are now expected to be made available to Chinese buyers in a bid to ease the power squeeze.

Between 500,000 and one million tonnes of thermal coal has been made available following an extraordinary bilateral stoush, which saw China refuse to take Australia’s coal supplies despite China enduring a freezing 2020-21 winter and paying a premium to secure supplies from both domestic and international producers.

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WoodMac now expects three million tonnes of Australian thermal coal and five million tonnes of metallurgical coal, used for steelmaking, to be cleared into China’s domestic market after being stockpiled at its ports.

“As the country grapples with one of the most gripping power crises in the last two decades, there are signs that China could be softening its stance on stranded Australian coal,” WoodMac principal analyst Rory Simington said.

“Chinese importers have told Wood Mackenzie that they believe they will now be allowed to clear Australian coal through customs. Most of this coal has already been unloaded into stockpiles at ports but has previously not been allowed to clear customs. Customs authorities have yet to officially confirm this with owners of the cargoes.”

READ MORE:Coal, gas surge amid China energy crisis|China’s coal backdown a sign of the new times

Despite the relaxation, industry sources say there is little immediate indication that China will look to buy fresh supplies from Australian producers.

Beijing plans to boost its own domestic coal capacity although severe flooding in the key coal province of Shanxi may test its resolve to keep a ban in place over the medium term.

Booming electricity demand, strict implementation of energy and environmental targets and record high coal prices have caused China’s power crunch, according to WoodMac, with the country striking a finely poised balancing act between keeping its foot on strong industrial growth and high energy costs.

India, another major buyer of Australian coal, is also teetering with potential blackouts in Delhi forecast for this week due to low coal stockpiles. Power plants in India’s northern states have just three days left of coal on average, according to Bloomberg data.

The price of premium Newcastle thermal coal has surged to fresh highs in recent days while spot LNG prices in Asia have soared to a fresh record amid a global scramble for supplies.

Rising prices have seen the return to full production of some coal mines. As prices plunged in 2020, Glencore sent thousands of workers across its Hunter Valley and Queensland mines on leave in September as it cut shifts and idled equipment and sought a “targeted” reduction of about seven million tonnes of annualised output.

Those mines are running back at full capacity on this year’s price gains but a UBS research note last week noted that coal exports through NSW ports, the primary export terminals for thermal coal, were up only 2 per cent compared to the same period in 2020.