Standing next to a bucket-wheeled recovery coal pile at the port of Newcastle in Newcastle, New South Wales, Australia on Monday, October 12, 2020.
David Gray | Bloomberg | Getty Images
China is facing its worst power crisis in years due to coal shortages. Although Beijing has a demand for Australian coal, the world’s second-largest economy is unlikely to lift an unofficial ban on Australian coal imports any time soon, analysts told CNBC.
Despite recent media reports that China is releasing small quantities of Australian coal that has been stuck in Chinese ports for months due to sanctions.
Commonwealth Bank of Australia mining and energy products analyst Vivek Dhar, Vivek Dhar, reports that Australian coal has been allowed to clear tariffs in China has sparked speculation that Chinese authorities will seek to ease Australian coal import bans. .
“We don’t think the Chinese authorities will relax China’s ban on Australian coal this winter,” he said.
China stopped buying Australian coal late last year. This came after rising trade tensions between the two countries after they backed calls for an international inquiry into Beijing’s handling of the Canberra Covid-19 outbreak.
Previously, Australia was a major coal supplier to China – in 2019, about 38% of Chinese thermal coal imports came from Australia.
Power crisis in China
China depends More on coal for power generation.
Since mid-August, power outages have been reported in at least 20 provinces across the country. This was due to a number of factors, including a shortage of coal supplies, strict government orders to reduce emissions, and high production demand as the global economic epidemic returned from low.
Officials have called on top state-owned energy companies to secure supplies for the coming winter at all costs.
But analysts say Beijing will not lift import bans on Australia any time soon.
Instead, they predict that China will increase its own coal production, tap on other international suppliers, and put pressure on its industries to curb output and emissions.
According to Rory Simminton, chief analyst at Wood Mackenzie, there are no signs that China will allow companies to buy new shipments of Australian coal.
“The political situation has not improved,” he told CNBC’s Squawk Box Asia in mid-October. “It’s basically a political issue and not an economic one, and, yes, there are no signs of easing the ban on new cargo.”
Beijing may look to other countries for more coal.
“China is likely to press Indonesian suppliers for more coal, but they are at almost maximum power,” Abhinav Gupta, a dry cargo research analyst at shipbreaking firm Bremer ACM, told CNBC earlier this month.
“China is trying 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 seen China buy more coal from Atlantic suppliers, such as the United States and Colombia,” Gupta said by e-mail. .
Dhar from the Commonwealth Bank said that despite unofficial sanctions on Australia, China’s thermal coal imports have remained “fairly good” due to increasing volumes of supplies from Indonesia and Russia. Between January and August, Indonesia accounted for about 57% of China’s thermal coal imports, he said.
Impact on Australia
Australian thermal coal at the port of Newcastle, which is the benchmark of the Asian market, Despite Chinese import bans have risen this year, according to commodity price provider 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 the price of Australian coal will probably depend on how cold the coming winter will be.
A freight train carries coal from the Gunedah Coal Handling and Preparation Plant operated by Whitehaven Coal Limited in Gunedah, New South Wales, Australia on Tuesday, October 13, 2020.
David Gray | Bloomberg | Getty Images
According to Shane Oliver, head of investment strategy at AMP Capital and chief economist, even if China lifts the ban on Australian coal imports, coal prices are unlikely to fall immediately.
“I doubt that if China lifts the import ban it will have a much greater impact on Australian producers because they will not only return to China but still get the same price,” he said in an email. “Ultimately, skyrocketing prices won’t last but they can still exist [be] Still high for a while. “
Australia’s export earnings have held up well despite coal bans and sharp declines in iron ore prices, Oliver said.
The Commonwealth Bank has said that if Beijing resumes buying coal from Canberra, it will only increase the demand and support price of Australian coal.
Nevertheless, Australian officials have condemned China for its trade embargo, which extends to other export items – such as wine and barley.
In a statement from the World Trade Organization last week, Australia says: “China says these measures reflect legitimate trade concerns; but there is a growing body of information that shows that China’s actions are motivated by political considerations.”