Mining sector pleads for Canberra to restore China trade 'stability'

Coal miners are pleading with the Morrison government to work with Beijing to secure an urgent removal of any restrictions targeting Australian coal imports in China and restore stability to the two countries' long-term trading relationship.

After Chinese state-run media reported a group of 10 power plants had been given permission to import coal cargoes from all countries except Australia, shares in ASX-listed coal producers fell on Tuesday. Yancoal shed 8.4 per cent, Whitehaven lost 5.8 per cent and New Hope lost 2.7 per cent. Coal port owner Dalrymple Bay Infrastructure, which floated on the ASX last week, dropped another 5.4 per cent.

Australia is a major exporter of thermal coal to China.Credit: Robert Rough

The news of the official instruction comes as Australian coal shippers have faced months of heightened import restrictions in China. Coinciding with a souring of diplomatic relations between Canberra and Beijing over calls for an inquiry into the origins of COVID-19, the Chinese government in May began verbally instructing power stations to buy local, Russian and Indonesian coal instead of Australian coal.

"The media report further formalises that Australian coal imports are being targeted by China," Commonwealth Bank's mining and energy commodities analyst Vivek Dhar said on Tuesday.

The head of Australia's peak mining body, representing major shippers of both thermal coal and coking coal, said Australia and China had a "strong, enduring and mutually beneficial" economic relationship, particularly in high-quality minerals, and urged the Morrison government to seek to mend ties.

"The success of this relationship has relied on a rules-based trade system, which has supported many years of economic growth and job creation," Minerals Council of Australia chief executive Tania Constable said. "The Minerals Council of Australia encourages the Australian and Chinese governments to work together to resolve these issues and restore stability to the long-term trading relationship."

Coal industry insiders, not authorised to speak publicly on the matter, on Tuesday pointed out that the restrictions on thermal coal shipments entering China had been in force for "several months", with the impact already digested by the market and reflected in the spot price.

The impact of Chinese import restrictions, combined with the pandemic-led economic slowdown weighing heavily on global energy demand, have driven the benchmark price of top-quality NSW thermal coal from an average of $US100 a tonne in 2019 to as low as $US50 this year. But the price has regained lost ground in recent weeks and is now as high as $US80, according to global energy consultancy Wood Mackenzie.

As the Australia ban causes a shortage of high-quality coal in China, Wood Mackenzie's Asia Pacific head of coal Rory Simington said coal buyers in China were being forced to pay more expensive prices for coal from other sources including Indonesia, Russia and South Africa to secure coal of a similar energy value to Australian product.

"This has allowed Australian producers to place material into less traditional markets such as India, Bangladesh, and Turkey as well as increase competitiveness into traditional south-eastern and north Asian markets," he said.

"Australian thermal coal prices have actually bounced back strongly."

Federal Trade Minister Simon Birmingham said China's treatment of Australia was unacceptable and he would pursue every avenue of restitution. He said the apparent ban on coal shipments could be in breach of World Trade Organisation regulations.

Last year, Australia shipped about $4 billion of thermal coal to China and $9.7 billion of coking coal, which is used in steelmaking.

Australia's overall thermal coal exports, which are set to fall 25 per cent this year from $20 billion to $15 billion, are also facing the threat of longer-term demand uncertainty after the local industry's three biggest customers – Japan, China and South Korea – signed up to targets to achieve net-zero carbon emissions between 2050-60, requiring less consumption of fossil fuels in their energy mix.

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