Liu Zhongjun | China News Service Getty Images China has completed the clearing of an outstanding Australian coal worth more than $ 1 billion, according to Chinese customs. However, analysts say it is unlikely that Chinese coal buyers will start buying new Australian coal supplies soon. This is due to the fact that coal reserves have accumulated, local production is higher and there are now higher commissions from exporters such as Russia who buy at a discount. Since October, Beijing has been unloading shipments of Australian coal blocked outside Chinese ports as the world’s second-largest economy experienced one of the worst power outages ever recorded. Power outages swept China as power plants cut electricity production to prevent losses as coal prices soared. In 2020, China imposed restrictions on exports of coal and other Australian goods following a diplomatic impact between the two countries. Many ships en route to China were stranded off the coast of China and could not dock. At the height of the crisis, more than 50 ships appear to be sitting outside ports, according to surveillance by the commodity intelligence group Kpler and Bloomberg. By March, however, more than 14 million tonnes of coal worth about $ 1.3 billion had been unloaded and cleared, according to Chinese customs. More than 8 million tonnes was coke coal, which is needed to make steel, and about 6 million tonnes was thermal coal, which produces electricity. No more Australian coal imports have been made since, according to Chinese customs. Despite thawing relations between the two nations, analysts say adequate local coal reserves and lower coal demand – especially in the Chinese steel industry – mean China is less likely to need to restart Australian coal markets in the short term. Demand for steel has also been weaker in recent months due to the slowdown in the Chinese economy caused by the Covid lockdown. “There may be some demand for very high quality [Australian] coal in the medium and certainly long term, but at the moment I’m not sure the Chinese would want to pay the current prices, given how weak the steel market and steel profit margins are, “Astris Advisory KK’s general commodity general Ian R he said.

Australia-China trade match

While Chinese restrictions reduced trade between the two countries, most of their bilateral trade worth A $ 250 billion ($ 172.35 billion) remained intact.
There have been some recent signs of thawing relations between the two countries since the election of the new Australian Government, raising hopes among exporters and importers that normal trade could be resumed. Following the Australian election, Chinese Premier Li Keqiang congratulated new Australian Prime Minister Anthony Albanese, who acknowledged the message in a reciprocal note. The two countries’ defense ministers also met on the sidelines of the Shangri-La Dialogue in Singapore earlier this month.

Can Australia and China re-establish trade ties?

Meanwhile, both markets have adapted to restrictions on coal imports from Australia to China. Australia has found new buyers and is sending coal otherwise destined for China to other countries. China, meanwhile, has sought increased supplies from producers such as Mongolia and Indonesia, and now uses coal from little-used exporters such as Colombia and South Africa and buys cheap coal from Russia. There may be some demand for very high quality coking coal in the medium and certainly long term, but at the moment I’m not sure the Chinese would want to pay the current prices given how weak the steel market is and the steel profit margins. Ian Roper Astris Advisory KK Japan China also boosted domestic coal production after the blackout crisis and boosted local reserves.
The latest figures from China’s National Bureau of Statistics show that between January and May, crude coal production rose 10.4% year-on-year to 1.81 billion tonnes, while imports fell to about 96 million tonnes – down 13.6 % compared to a year ago. Steel production in China has declined in recent months due to a slowdown in construction activity as Covid lockdowns spread. As a result, coke coal reserves have increased significantly. In the long run, Beijing – which has pledged to reduce emissions – plans to cut steel production to meet its targets by 2030 and 2060, thus reducing coal demand. In other words, the sector is changing as well – especially given the global impetus for climate change, said Dianne Tipping, President of the Australian Export Board. And even if some Chinese demand returns, it may not be possible for Australia to sell to China if alternative markets are found and there are new supply contracts with other buyers, Tipping added. That said, at the right price, Australian exporters would still have an incentive to sell in China when driven by market forces, Tipping said. Atilla Widnell, CEO of the trading consulting firm Navigate Commodities, agreed. Sales will take place when there are enough commercial benefits for both parties, he said. “China is likely to keep an eye on low-cost, low- to mid-range cheap Mongolian and Russian coal captives while pursuing more attractive prices for high-quality Australian materials,” Widnell said. “Given the lack of affordable premiums available in China, this may encourage respective administrations to thaw their relationships sooner rather than later.”