A bulldozer pushes coal onto a conveyor at the Jiangyou power plant in Jiangyou, Mianyang city, China’s Sichuan province, 28 January 2022.
Liu Zhongjun | China news service | Getty Images
China has completed clearing a backlog of over $1 billion in stranded Australian coal, Chinese customs data shows.
But analysts say Chinese coal buyers are unlikely to be buying new supplies of Australian coal any time soon. That’s because coal stocks have built up, local production is higher, and there are now larger supplies from exporters like Russia being bought at a discount.
Beijing has been there since October Unloading cargoes of Australian coal stranded off Chinese ports after the world’s second largest economy experienced one of its worst power outages on record.
Power outages swept across China after power plants reduced electricity production to stave off losses while coal prices soared.
In 2020, China imposed restrictions on Australian coal exports and other goods, following a diplomatic row between the two countries. Many ships en route to China ran aground off the coast of China and were unable to dock.
At the height of the crisis, more than 50 ships could be seen outside ports, according to a trace conducted by commodities intelligence group Kpler and Bloomberg.
But as of March, over 14 million tons of coal worth about $1.3 billion had been unloaded and declared, China’s customs data showed.
Over 8 million tons was coking coal, which is essential for steelmaking, while about 6 million tons was thermal coal, which produces electricity.
Since then, according to Chinese customs, there have been no further imports of Australian coal.
Despite thawing ties between the two nations, analysts say adequate local coal supplies and lower demand for coal — particularly in China’s steel industry — mean China is less likely to have to resume buying Australian coal in the short term.
Demand for steel has also been weaker in recent months due to a slowdown in the Chinese economy caused by Covid lockdowns.
“There may be some demand for the very high quality [Australian] Coking coal in the medium term and certainly longer term, but at the moment I’m not sure the Chinese would be willing to pay current prices given how weak the steel market and steel margins are,” Ian Roper, Commodity Strategist at Astris Advisory KK Japan said.
Trade dispute between Australia and China
While Chinese restrictions reduced some trade between the two countries, most of their A$250 billion (US$172.35 billion) bilateral trade remained intact.
Following the election of Australia’s new government, there were some signs of easing in relations between the two countries, raising hopes of normal trade resuming among exporters and importers.
After the Australian election, Chinese Premier Li Keqiang congratulated the new Australian Prime Minister, Anthony Albanese, who wrote back to the embassy.
The two countries’ defense ministers also met earlier this month on the sidelines of the Shangri-La Dialogue in Singapore.
Can Australia and China reset trade relations?
Both markets have now adjusted to the restrictions on Australian coal imports to China.
Australia has found new buyers and is shipping coal otherwise destined for China to other countries.
Meanwhile, China, seeking increased supplies from producers like Mongolia and Indonesia, is now using coal from underutilized exporters like Colombia and South Africa, and buying cheap coal from Russia.
There may be some medium term and certainly longer term demand for the very high quality coking coal, but right now I’m not sure the Chinese would be willing to pay current prices given how weak the steel market and steel margins are.
Ian Roper
Astris Advisory KK Japan
China also ramped up domestic coal production and increased local stockpiles after the blackout crisis.
The latest data from the National Bureau of Statistics of China showed that raw coal production rose 10.4% year-on-year to 1.81 billion tons between January and May, while imports fell to around 96 million tons — a 13-month decline .6% compared to the previous year.
Steel production in China has declined in recent months due to a slowdown in construction activity as Covid lockdowns spread. As a result, the coking coal stocks in particular have increased.
In the longer term, Beijing — which has pledged to cut emissions — plans to reduce 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 trend towards climate change, said Dianne Tipping, Chair of the Export Council of Australia.
And even if some Chinese demand returns, Australia may not be able to sell to China once alternative markets have been found and new supply deals are in place with other buyers, Tipping added.
However, at the right price, Australian exporters would still be motivated to sell to China if driven by market forces, tip said.
Atilla Widnell, managing director of trading consultancy Navigate Commodities, agreed.
Sale occurs when there are sufficient commercial benefits for both parties, he said.
“China will likely keep an eye on captured low- to mid-range cheap Mongolian and Russian coking coals, while keeping an eye on more attractive prices for premium Australian material,” Widnell said.
“Given the lack of affordable premium volume for China, this may encourage respective governments to unfreeze ties sooner rather than later.”