China move puts heat on coal miners
Shares in pure-play coal miners pared early sharp losses as fears of China port ban eased throughout the session.
Australian pure-play coal miners took a hit after China banned Australian coal exports from entering five ports in a potential $US2 billion ($2.8bn) hit to the nation’s top export earner.
The recently-listed Coronado Coal shed as much as 6.2 per cent in early trade but pared losses to close down 2.8 per cent. Queensland miner Stanmore Coal initially dived 8.9 per cent before bouncing back to close down 2.1 per cent. New Hope Coal dropped as much as 4.3 per cent before ending the session off 3.55 per cent as Yancoal dropped 2.8 per cent. Whitehaven Coal and Terracom actually managed to turn around early losses and book solid gains of 0.6 and 2.4 per cent resprectively.
The big diversified miners BHP, Rio Tinto were little changed although South32 ended the session down 1 per cent.
Trade Minister Simon Birmingham last night ordered an urgent investigation by Australia’s ambassador in Beijing, Jan Adams, as officials remained unsure for the reasons behind the Chinese move.
However, Treasurer Josh Frydenberg today said China is not seeking retribution against Australia, that the two countries had a strong trading relationship and there was no “ban” on Australian coal.
The ban affects about 15 per cent of Australia’s exports to China, according to Macquarie analysis, and could lead to a earnings hit of $US2.02bn at current spot prices.
“With many of the world’s largest producers primary coal operations based in Australia, if the ban is accurate and/or is extended, we would expect mid-range coking coal and lower-grade Australian thermal to be the most impacted,” Macquarie analyst Andrew Hodge said. “Due to lower grades Whitehaven Coal’s semisoft met coal, and New Hope’s bronze thermal could be at risk.”
Still, with Australia supplying nearly a quarter of China’s coal, it thinks a total ban seems unlikely.
China’s focus has switched from coking to thermal coal with a ban on the former unsustainable, given China is short of the steel-making raw material, Credit Suisse said.
“The new element seems to be an indefinite ban, rather than the lengthy 40-60 days to pass Customs,” Credit Suisse analyst Matthew Hope said. “But the effect is the same: Chinese traders are not buying Aussie thermal coal. We do not expect an official announcement—an import ban breaks global trade rules.”
Yancoal, which controls 65 per cent of Hunter Valley high ash thermal coal, may be hit, although its partner Glencore may dodge any impact given its ability to blend the coal to upgrade for other markets.
BHP’s Mt Arthur mine, which supplies 8m tonnes of high-ash coal, may also face issues.
The mine is “huge-scale and reliant on China and has insufficient washing capacity and no other mines to blend with,” Mr Hope said.
Stanmore Coal said it has only a small exposure to China with most of its long-term contracts with Japan and South Korea.
“Stanmore has limited exposure to China through spot sales which are also made to customers in a range of other countries,” Stanmore managing director Dan Clifford said. “Stanmore will continue to monitor the situation to determine whether there will be any impact on the company’s coal sales.”
Anglo American, Australia’s third largest coal producer, said China accounted for only a small portion of its exports and it had not seen any delays to date.
“Certainly we haven’t seen any direct impact at this stage but we watch that very closely,” Anglo chief executive Mark Cutifani told analysts on its earnings call overnight. “And that’s why I’ve been talking to people in Shanghai this morning.”
Glencore boss Ivan Glasenberg described coal delays into China as a “political issue” when quizzed by analysts at its full-year earnings on Wednesday.
“They’re delaying cargoes - I think it’s about 30-day delays, so we’re waiting and monitoring it to see what big effect it has - what effect it’s going to have, when they’re going to solve this diplomatic dispute which is occurring, so let’s wait and see,” Mr Glasenberg said. “It’s hard to predict right now.”
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