China’s coal backdown a sign of the new times

A couple take pictures along the Huangpu river across the Wujing Coal-Electricity Power Station in Shanghai. China’s coal-hungry heavy industry is already facing restricted hours due to lack of supply. Picture: AFP

Looming energy shortages as China enters winter have finally forced Beijing to soften its ban on the movement of stranded Australian coal.

A decision to allow Australian coal cargoes to unload comes at least six months later than many in the industry thought it might, indicating China had little choice in the matter.

Australian coal imports were banned over a year ago with little advance notice: among the most dramatic effects of the move was the stranding of more than 450,000 tonnes of Australian coal that was in transit at the time.

China’s coal-hungry heavy industry is already facing restricted hours due to lack of supply. At the same time, coal imports have ­become very expensive, with the price of coal per tonne soaring to more than $US200 in recent weeks.

Industry analysts suggest the concession by Chinese authorities to ignore the ban on Australian coal would have been heavily influenced by price. According to industry reports, the move means about 450,000 tonnes of Australian coal has recently entered China.

However, Chinese buyers would have only paid around $US70 a tonne for the year-old cargo – about a third of the current price.

“There was quite some resilience on show here: after all, they held off for more than a year, but in the end China industry was being squeezed,” says Daniel Hynes, senior commodities analyst at ANZ.

More than anything else, the change of stance from China importers demonstrates in clear terms just how “tight” the global coal market has become in recent months. Long-term demand for coal is under serious pressure, but in the nearer term there is simply not enough supply to satisfy existing demand.

Inside China the energy supply issue is particularly acute, as local coal producers do not come near satisfying the energy demands of the national population.

Since closing its doors to Australia, China has witnessed the policy backfire, forcing a worldwide hunt for new coal contracts.

Beijing has had to search well beyond traditional sources such as Indonesia to include South ­Africa, Mozambique and, most recently, Kazakhstan.

Curiously, China has also lifted imports from US mines. The new business has boosted the likes of Coronado Coal, which has operations in West Virginia and is now winning orders as a “swing producer” for China buyers.

Earlier this week, the head of coal producer New Hope Group, Robert Millner, said that strong demand from Asian buyers would keep prices elevated over the ­medium term.

Meanwhile, the controversial Adani mine in Queensland has been recruiting hundreds of new staff to ramp up capacity as the timing of the mine project works out very well in terms of rising coal prices.

Ironically, coal prices have bounded ahead in tandem with a distinct acceleration in the move towards alternative energy as the federal government mulls a target of net zero emissions by 2050.

Meanwhile, the big question is whether the Australian coal industry has managed to get China buyers back on an ongoing basis.

In recent months, AustAsia has been finding new replacement markets in Japan and South Korea – coal exports have been rising overall and it remains Australis’s second-biggest export after iron ore.

“I think they will do everything to continue to boost their sources beyond Australia,” says Hynes at ANZ.

“I don’t see anything in the wider trade context to suggest that China will be asking for more.”