Fears raised as China looks to cut coal imports
An Australian delegation will raise the issue in China this week as part of an annual strategic economic dialogue.
Concerns about Australia’s $8 billion a year in coal exports to China have forced the issue on to the agenda for the annual economic commission between the countries, to be held in Hangzhou on Friday.
Indications are emerging that China wishes to reduce overall coal imports by 10 per cent this calendar year, but all shipments from Australia have been accepted as scheduled so far — although exporters have reported the application of extra tests on the products, and unusual delays in clearing customs.
The Australian embassy in Beijing has been seeking official information about the situation from Chinese authorities.
Trade, Tourism and Investment Minister Steven Ciobo will be leading the Australian team at Friday’s talks, with Commerce Minister Zhong Shan on the Chinese side.
Their talks will be followed on Saturday in Beijing by the countries’ annual strategic economic dialogue, which will be led on the Australian side by Treasurer Scott Morrison, and from China, by National Development and Reform Commission chairman He Lifeng.
Last year the State Council, China’s Cabinet, announced a plan to reduce domestic coal production in order to limit pollution and curtail excess capacity and financial losses.
This led to a jump in both metallurgical and thermal coal prices, by up to 60 per cent, and in coal imports.
“That wasn’t the outcome the authorities wanted to see,” an industry source told The Australian.
It was reported recently that the major port of Guangzhou — which has a capacity to unload 60 million tonnes of coal a year — had halted imports.
But the port said this was due to a typhoon in the area — and it has indeed reopened to coal ships this week.
However, China’s 150 or so second-tier ports have been closed to coal shipments since July 1. This affects thermal coal — used for power stations — which was previously unloaded at both first and second-tier ports, whichever was nearer to the purchaser.
Metallurgical coal, used for steel making, has been imported almost entirely through first-tier ports.
Australia sells both, together comprising the second-biggest single export to China after iron ore.
Chinese authorities have indicated that second-tier ports have inadequate facilities for testing the quality of the coal being imported, and that due to environmental priorities they prefer it to be handled by tier-one ports.
The tier-one ports are controlled by central government, and the tier-two ports mostly by provincial governments.
The central government is juggling many priorities — including managing the transition of many Chinese coal mining communities away from the industry — with the consequent large numbers of unemployed needing to find new jobs.
China’s coal production comes chiefly from a large number of mines that are small by today’s world standards, especially by comparison with Australia, and most are underground. Costs are fairly high, and efficiency low.
The Australian government has been pressing the Chinese authorities to consider shifting from its own coal testing procedure to the international standard, which would be easier and more predictable for the industry to manage — providing a level of certainty before the consignments leave the exporting port.
The testing period of coal cargoes has recently been extended — from an average of 14-21 days to 30-45 days, adding further “invisible” costs.
This issue was raised by Canberra at the most recent China Australia Free Trade Agreement committee that discusses technical barriers, as a priority concern, seeking to ensure consultation before changes are made to the trade environment for a commodity that remains critical for both countries.
The Chinese Coal Industry Association has not yet responded to a request for a comment.
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