Target $2.25, page-183

From 'The Wall Street Journal' (reproduced in 'The Australian' print/online on Thursday 11 February 2021):

China’s ban on Australian coal imports is intensifying a crisis in its coal market, which is battling surging prices, supply shortages, conflicting policy goals and a cold winter.

Locked in a diplomatic brawl over Canberra’s call for an independent global inquiry into the origins of COVID-19, Beijing imposed an informal ban around September that forced boatloads of Australian coal to languish at sea. China’s central government made the embargo official at a mid-December meeting with major Chinese electricity producers, who are big buyers of thermal coal.

The ban complicated a supply crunch that the meeting was convened to solve, government and state media reports show. China was short of thermal coal and officials urged the companies to import more--from anywhere except Australia, China’s biggest supplier. To comply, buyers in China have had to pay steep premiums for imports from farther afield, on top of prices that have risen 84 per cent since mid-year.

“Coal buyers are on tenterhooks watching the import market,” the China Coal Transportation and Distribution Association, which represents importers, said in a statement. “It’s been hard to replenish low coal inventory and shortages, while demand is unabated.”

From Norwegian salmon to Mongolian commodities, Beijing has in recent years increasingly used China’s buying heft to apply political pressure abroad--but the coal market is showing that the strategy can backfire. Even as Chinese buyers obeyed Beijing, Australia’s coal prices rallied as other buyers from big coal-consuming nations, including Japan and India, stepped in.

“It’s a pretty crazy situation,” said Rory Simington, a principal analyst at energy researcher Wood Mackenzie. “The price of high-grade coal in Australia right now is at a big discount to spot coal in the Chinese domestic market.”

Prices in China surged over the seven months through January to records of more than $US130 a tonne for high-grade thermal coal--nearly twice the mid-year level--due to slower output last year and a faster-than-expected economic recovery.

The Chinese coal association said prices have this month started to edge down for some coal varieties, and Beijing’s top economic planner last month assured the public that China has enough coal to meet demand. The shortage has eaten into coal reserves, though hasn’t weighed on industrial output yet. A longer jag of high prices, if unaddressed, could have slowed China’s manufacturing and risked a public outcry. The National Development and Reform Commission, which organised the December meeting to stabilise the market, didn’t respond to a request for comment.

Two big state-backed Chinese coal indexes on December 30 said that the market was so chaotic that they could no longer provide such pricing.

“The government needs to adopt measures to increase coal supply to guide the market back to a reasonable range as soon as possible,” the China Electricity Council, which owns one of the indexes, said in a statement. The council resumed its index a week later, but modified it to a weekly, rather than its previous daily, format. The coal association, which also halted its index, hasn’t resumed pricing high-grade coal.