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A bucket-wheel reclaimer stands subsequent to a pile of coal on the Port of Newcastle in Newcastle, New South Wales, Australia, on Monday, Oct. 12, 2020.
David Grey | Bloomberg | Getty Photos
China is going through its worst energy disaster in years on account of a coal scarcity. Whereas Australia has the coal Beijing wants, the world’s second-largest economic system is unlikely to reverse an unofficial ban on Australian coal imports anytime quickly, analysts instructed CNBC.
That is regardless of latest media reviews suggesting that China is releasing small portions of Australian coal that was caught at Chinese language ports for months as a result of ban.
“Reviews that small portions of Australian coal had been allowed to clear customs in China have elevated hypothesis that Chinese language authorities will look to calm down the import ban on Australian coal,” Vivek Dhar, mining and power commodities analyst on the Commonwealth Financial institution of Australia, instructed CNBC.
“We do not assume Chinese language authorities will calm down China’s ban on Australian coal this winter,” he stated.
Late final 12 months, China stopped shopping for Australian coal. That occurred as commerce tensions between the 2 nations soared after Canberra backed a name for a global inquiry into Beijing’s dealing with of the Covid-19 outbreak.
Earlier than that, Australia was a serious coal provider to China — in 2019, some 38% of Chinese language thermal coal imports got here from Australia.
Power crunch in China
China depends heavily on coal for power generation.
Since mid-August, at least 20 provinces across the country have reported power cuts of varying extent. That was due to several factors including a shortage of coal supplies, tougher government mandates to cut emissions and higher manufacturing demand as the global economy bounces back from pandemic lows.
Officials have reportedly urged top state-owned energy companies to secure supplies for the upcoming winter at all costs.
But analysts say Beijing will not likely lift the import restrictions on Australia anytime soon.
Instead, they predict that China will look to boost its own coal production, tap on other international suppliers and push its industries to curb output and emissions.
There are no signs that China will allow companies to purchase new shipments of Australian coal, according to Rory Simington, principal analyst at Wood Mackenzie.
China is likely to push Indonesian suppliers for more coal but they are nearly at peak capacity.
“The political situation hasn’t improved at all,” he told CNBC’s “Squawk Box Asia” in mid-October. “This is largely a political issue and not an economic one, and, yeah, no signs of any easing on the ban on new cargoes.”
Beijing may also look to other countries for more coal.
“China is likely to push Indonesian suppliers for more coal but they are nearly at peak capacity,” Abhinav Gupta, a dry cargo research analyst at shipbroking firm Braemar, told CNBC earlier this month.
“China has also been trying to get more Mongolian and Russian coal to cater to its demand; however, there is some competitive pressure for Russian coal from the European buyers. We have also seen China buying more coal from suppliers in the Atlantic, such as US and Colombia,” Gupta said by email.
Dhar from Commonwealth Bank said that despite the informal ban on Australia, China’s thermal coal imports have held up “fairly well” due to a growing volume of supply from Indonesia and Russia. Between January and August, Indonesia accounted for roughly 57% of China’s thermal coal imports, he said.
Impact on Australia
Australian thermal coal at Newcastle Port, which is the benchmark for the Asian market, surged this year despite China’s import ban, according to commodity price provider Argus.
“The main driver of current thermal coal prices, particularly from Australia, is demand in North Asia ahead of this winter,” said Dhar. He added that Australian coal prices would likely depend on how cold the upcoming winter turns out.
A freight train transports coal from the Gunnedah Coal Handling and Prepararation Plant, operated by Whitehaven Coal Ltd., in Gunnedah, New South Wales, Australia, on Tuesday, Oct. 13, 2020.
David Gray | Bloomberg | Getty Images
Elevated coal prices are unlikely to immediately fall even if China lifts the import ban on Australian coal, according to Shane Oliver, head of investment strategy and chief economist at AMP Capital.
“I doubt if China lifts the import ban that it would have much impact on Australian producers as they would just redirect back to China but still get the same price,” he said in an email. “Ultimately, the sky high prices won’t be sustained but they may still [be] high for a while yet.”
Australia’s export earnings have held up well despite the coal ban and a sharp drop in iron ore prices, Oliver said.
Commonwealth Bank’s Dhar said that if Beijing resumes buying coal from Canberra, it would only add to the demand for Australian coal and support prices further.
Still, Australian officials have slammed China for the trade sanctions that extend to other export items — such as wine and barley.
In a statement to the World Trade Organization last week, Australia stated: “China says that these actions replicate official commerce issues; however there’s a rising physique of knowledge that demonstrates China’s actions are motivated by political issues.”
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