Australia’s ties with top trade partner China embittered in 2020 when Canberra publicly called for an enquiry into the origins of the coronavirus. Diplomatic retaliations have since followed, including a raft of trade measures imposed by China on Australian metallurgical coal exports.
In October 2020, China “found” coal imports
failed to meet environmental standards amid stalled Australian shipments, with the
share of China’s coal imports from Australia falling to 26% in that month.
Previously,
in February 2020, Australia banned people arriving from China and later closed
its borders and imposed strict curbs on public movements. Later in the year, Australia added
pressure on China over its handling of the novel coronavirus,
questioning its transparency and demanding an international investigation
into the origins of the virus and how it spread.
In the
last quarter of 2020, Australia started investigating reports that China had
verbally instructed buyers to avoid Australian coal supplies. The restrictions
on Australian coal naturally represented a new opportunity for other producers
in the region, particularly in East Asia and Northeast Asia, to satisfy China’s
coal deficit.

However,
imports from Mongolia, Russia and North America were not enough. In June 2021,
Chinese factories began to report power outages and electricity shortages, resulting
in most industrialized provinces such as Xinjiang, Qinghai, Jiangsu, Guangxi,
and Guangdong facing severe power consumption problems.
On the
other hand, customs authorities in Huangpu, south China put a quarterly limit
on coal imports in an effort to curb the country's seaborne coal demand in the
June quarter of 2021. Local authorities introduced a limit of around 3Mt coal
imports in the respective quarter, after imports in the March quarter reached
6-7Mt, substantially more than in the same period last year.
The Winners
China’s steel mills consume more than 700Mt
of coal a year and obtain around 88% of it from domestic mines. As a result, imports
are crucial not only for the quantity needed, but for both their quality and
flexibility in meeting demand.
Throughout 2021, China’s domestic supplies
have also been troubled. A series of fatal accidents has forced the closure of
many Chinese coal mines. In the third quarter of 2021, coal mines in Shanxi
province were ordered to close for a month after a worker was killed. This
followed the closure of 22 mines in the province after three mining accidents
in June. Similar closures due to safety reasons were also ordered in Hebei and
Henan provinces.
The unofficial ban by the Chinese government
on Australian coal since 2020 impacted global trade flows of the bulk commodity,
fully diversifying the structure for China's coal supply in 2021. With
domestic production struggling, export volumes to China from non-Australian
origins, including Canada, Russia, Indonesia and the U.S., have increased
across different grades of metallurgical coal.
Mongolian coal miners were set to be the
major beneficiaries due to the quality of Mongolian coal. However, the resurgence
of COVID-19 cases has affected the Chinese-Mongolian border causing
intermittent closures and distressing export volumes.
Given Mongolia’s abundance of coal and
China’s heavy manufacturing industry, Mongolia makes an important trade partner.
As the global coal prices remain volatile, steep transportation costs and
tariffs are a major dealbreaker for the Chinese, further incentivizing sourcing
coal closer to home. Mongolia coal exports will continue to be the country’s
primary source of investment and business, given Mongolia’s slow economic
growth.
Russia is negotiating to boost coal supplies
to China. Potential annual growth is expected to reach 50Mt in a favourable
case scenario, subject to the increase in railway carrying capacity. Russian
supply accounts for 19% of the total coking coal imported by China in the last
year. In 2021, China’s imports from Russia drastically increased by 59.6% year
on year.
The US has also become a key supplier for
China due to the ongoing trade conflict between Beijing and Canberra. In 2021,
China imported nearly 10.25Mt of hard coking coal from the North American, more
than the previous four years combined. This represents an increment of 990%
compared to the actual volume imported in 2020.
Ease
at Sight
Some
Chinese steelmakers have expressed their need for Australian coking coal to the
Chinese government with the help of industry associations, but there are no
clear signs yet on China lift the ban. China imported 55.55Mt of coking coal
last year, down by 23.5% from 2020. Even though demand for non-Australian
seaborne coal imports was strong, it still could not make up for the gap left
by Australian and Mongolian coal imports.
The
limited supply supported a dramatic increase in China’s prices, which dragged
Australian prices higher. China’s steel mills have been able to pass the
increased costs of raw materials on to their customers. With the Chinese steel
industry under orders to keep production under 1.06 billion tonnes produced
last year, there’s competition among customers to secure supplies.
In October 2021, Chinese port authorities
informed mills and trading firms, which hold Australian coal that has been
discharged at the ports, that they would start to clear the coal. The main goal
of the discharge from vessels and cleared through customs, was to boost thermal
coal supply for winter heating demand, but also increment coking coal supply.
After registering imports of 0.778Mt of
Australian coal in October 2021, China has again allowed to pass 2.67Mt of
Australian coking coal loaded on the coal transport vessels through customs
clearance in November 2021. However, the amount registered for the month does
not constitute newly contracted coal, but the release of coal transport vessels
that have been waiting in the offing of the ports since the Chinese Government
unofficially banned the import of the Australian coal
Steel mills in north, northeast and east
China confirmed they received notice from relevant authorities that their consignments
will be allowed for release. However, only cargoes that were recorded in the
customs system prior to October 2020 were allowed for clearance. The release of
the coal was linked to China's efforts to alleviate power shortages before the
winter season. The priority on thermal coal supply has limited the relief for
steelmakers.
Australia is expected to continue to benefit
from the growing Indian demand for Australian better-priced coal. Buyers expect
India’s buying spree of Australian coal to last into next year due to its price
and quality.
