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China in no rush to resume buying Australian coal www.afr.com
Tokyo | China is unlikely to resume importing Australian coal even if bilateral relations improve, as Beijing ramps up both domestic production and imports of the commodity from Russia and Mongolia, traders and analysts say.
While there has been talk recently in China’s commodities markets that Beijing was considering lifting an unofficial ban on Australian coal, analysts said the country did not need the fuel, even though it was of a higher quality.
The value of Russian coal imports into China doubled between February and May this year, following the start of the Ukraine war, further reducing Beijing’s need for Australian coal, an analysis of China Customs data by The Australian Financial Review this week showed.
“If the import of Australian coal is restarted, it will take time,” analysts at industry consultancy MySteel wrote in a recent report.
“Second, even if the Australian coal is released, compared with domestic coal, the current price of imported Australian coal is not ideal.
China is also ramping up coal imports from Russia despite sanctions against Moscow by Western powers over its invasion of Ukraine. Imports from Mongolia have also climbed since pandemic-related border restrictions were eased.
Coal consultant Today Think Tank said Mongolia’s coking coal exports to China jumped 37.7 per cent month-on-month to 1.8 million tonnes in May – a 124 per cent year-on-year jump. Coking coal, used to turn iron ore into steel, accounted for 1.8 million tonnes.
Data showing the number of vehicles passing through border ports increasing to 372 in May from 119 in April highlighted the impact of the eased restrictions.
China is also ramping up domestic coal production, which it hopes will give it more control over price fluctuations and stave off a repeat of last year’s power crunch when some manufacturers lost access to power for several weeks.
Analysts said China would produce an additional 200 million tonnes of thermal coal this year, particularly in the provinces of Shanxi, Shaanxi and Inner Mongolia. Last week, Shanxi said it wanted to increase annual production by 107 million tonnes this year, to 1.3 billion tonnes, by restarting 124 inactive mines.
Analysts in China say the impact of imported coal on domestic prices is weakening. China’s thermal coal imports fell 37 per cent from January to May, to 29.7 million tonnes.
Meanwhile, demand for coking coal used to make steel was also declining as China’s economic growth slowed, and mills struggled to remain profitable.
Officials said that production cuts at China’s steel mills were inevitable given high inventories, capital constraints and concerns about the rising price of fuel.
China’s Metallurgical Industry Information Standards Research Institute said rising coke prices were hurting profit margins for steel mills.
While the price of imported iron ore has also dropped by nearly 800 yuan ($174) per tonne year-on-year, the price of coke used to make steel was at a record high of 3200 yuan per tonne.
Zhang Longqiang, an official at the institute, said the profit margins for steel were almost completely eroded by rising coke prices.
“The steel industry is basically on the verge of a loss,” he told China National Radio. “Costs are critical. The price of iron ore has been lowered appropriately, and the current level we think is acceptable, but the coke is a bit too expensive.”
Growing Steel inventories would reduce the need for coal.
Small shipments of Australian thermal coal that had arrived in China but not been allowed through customs were released late last year when the country was facing severe power shortages. This was reflected in an increase in Australian coal imports between October and February.
Since then, China has not imported any Australian coal, Customs data up to the end of May showed.
Customs data for June will be released on Wednesday next week.
Prime Minister Anthony Albanese has said China must remove bans or restrictions on Australian exports if it is serious about a reset in diplomatic relations. Beijing has indicated it is not prepared to do that for the time being.
BY: Michael Smith is the North Asia correspondent for The Australian Financial Review. He is based in Tokyo. Connect with Michael on Twitter. Email Michael at michael.smith@afr.com
Published Date:2022-07-05
