A bucket wheel reclaimer sits next to a pile of coal at Newcastle Port in Newcastle, New South Wales, Australia on Monday 12 October 2020.
David Gray | Bloomberg | Getty Images
China faces its worst energy crisis in years due to a coal shortage. While Australia has the coal Beijing needs, the world’s second-largest economy is unlikely to revoke an unofficial ban on Australian coal imports anytime soon, analysts told CNBC.
This is despite recent media reports suggesting that China release small amounts of Australian coal that has been stranded in Chinese ports for months due to the ban.
“Reports that small quantities of Australian coal have been cleared through customs in China have heightened speculation that Chinese authorities are seeking to relax the import ban on Australian coal,” Vivek Dhar told CNBC, mining and energy commodities analyst at the Commonwealth Bank of Australia. .
“We don’t believe Chinese authorities will relax China’s ban on Australian coal this winter,” he said.
At the end of last year, China stopped buying Australian coal. It came as trade tensions between the two countries soared after Canberra backed a call for an international investigation into Beijing’s handling of the Covid-19 outbreak.
Before that, Australia was a major supplier of coal to China – in 2019, some 38% of China’s thermal coal imports came from Australia.
Energy crisis in China
China matters heavily on coal for power generation.
Since mid-August, at least 20 provinces across the country have reported more or less significant power cuts. This was due to several factors, including a shortage of coal supplies, tighter government mandates to cut emissions, and higher manufacturing demand as the global economy rebounds from pandemic lows.
Officials have reportedly urged major state energy companies to guarantee supplies for the coming winter at all costs.
But analysts say Beijing is unlikely to lift import restrictions on Australia anytime soon.
Instead, they predict that China will look to increase its own production of coal, bring in other international suppliers, and push its industries to cut production and emissions.
There is no indication that China will allow companies to buy new shipments of Australian coal, according to Rory Simington, senior analyst at Wood Mackenzie.
“The political situation has not improved at all,” he told CNBC’s “Squawk Box Asia” in mid-October. “This is largely a political issue, not an economic one, and, yes, no sign of easing the ban on new cargoes.”
Beijing could also look to other countries for more coal.
“China is likely to push Indonesian suppliers to buy more coal, but they are almost at capacity,” Abhinav Gupta, dry cargo research analyst at the Braemar ACM shipping brokerage firm, told CNBC, earlier this month.
“China has also tried to get more Mongolian and Russian coal to meet its demand; however, there is some competitive pressure for Russian coal from European buyers. We have also seen China buying more coal from suppliers in the Atlantic, such as the United States and Colombia, ”Gupta said by email.
Dhar of the Commonwealth Bank said that despite the informal ban imposed on Australia, Chinese imports of thermal coal have held up “fairly well” due to an increasing volume of supply from Indonesia and from Russia. Between January and August, Indonesia accounted for about 57% of China’s thermal coal imports, he said.
Australian thermal coal from the port of Newcastle, which is the benchmark for the Asian market, jumped this year despite China’s import ban, according to commodity price supplier Argus.
“The main driver of current thermal coal prices, especially from Australia, is demand in North Asia before this winter,” Dhar said. He added that Australian coal prices would likely depend on the cold winter ahead.
A freight train transports coal from the Gunnedah Coal Processing and Preparation Plant, operated by Whitehaven Coal Ltd., in Gunnedah, New South Wales, Australia on Tuesday October 13, 2020.
David Gray | Bloomberg | Getty Images
According to Shane Oliver, chief investment officer and chief economist at AMP Capital, high coal prices are unlikely to fall immediately, even if China lifts the import ban on Australian coal.
“I doubt China lifts the import ban that this would have much of an impact on Australian producers because they would just be redirected to China but still get the same price,” he said in a statement. -mail. “Ultimately, the sky-high prices will not be sustained, but they could still [be] high for some time yet. “
australia export earnings held up well despite the coal ban and a sharp drop in iron ore prices, Oliver said.
Dhar, of the Commonwealth Bank, said that if Beijing resumed its purchases of coal from Canberra, it would only increase demand for Australian coal and further support prices.
Yet Australian officials have criticized China for trade sanctions that extend to other export products, such as wine and barley.
In a statement to the World Trade Organization last week, Australia said, “China says these actions reflect legitimate trade concerns, but there is a growing body of information that demonstrates that China’s actions are politically motivated.”