Australia: Coal exports dwindle on shrinking demand across APAC markets

Australia's coal export shipments shrank 14.9% to 26.92 million tonnes (mn t) in July, as compared to 31.62 mn t in June, according to latest vessel lineup data.

The country's cumulative exports have totaled 209.74 mn t in the first seven months of the year, down 7.1% against the aggregate volume of 225.81 mn t exported during the corresponding period of last year.

--Country-wise breakdown of coal exports from Australia

China has surpassed Japan as the largest importer of Australian coal in this year so far, followed by South Korea, India, Taiwan and Vietnam. As yet, China and Japan together account for more than half of Australia's total coal exports.

Ironically, demand for thermal coal from most of Australia's main export markets, specifically China and Japan, is in a state of permanent decline as both major economies are rapidly transitioning to cleaner energy sourcing technologies.

Certain other factors, mainly governmental initiatives undertaken as longstanding efforts toward increasing self-reliance on domestically produced coal supplies, are also paving the way for diminished import demand from key coal-consuming nations in the Asia-Pacific region.

--Exports to China plummet after two months of record highs

Chinese coal imports from Australia contracted a staggering 47.9% last month to 6.35 mn t, as against 12.20 mn t in June -- marking a sharp contrast to the sudden spike of Australian coal export shipments to China as seen earlier this year during May and June.

China's overall coal imports fell 21% year-on-year to 26.1 mn t in July, as per latest customs data. One might well conclude that this fall in China's July coal imports is on expected lines, as restrictions on cheaper foreign coal aimed at supporting domestic miners impeded purchases by traders and end-user buyers, despite surging demand.

Chinese steel mills and power plants had largely been refraining from seaborne coal procurement since the second half of 2020 in the light of stringent import restrictions and lengthy customs clearance policies imposed at major coal-handling ports.

On a year-to-date basis, however, China imported 200 mn t of coal during January to July this year, up 7% over the same period last year, following strong imports in the first quarter.

The periodic surging of China's thermal and coking coal imports from Australia, witnessed during January-April this year, was primarily due to a significant backlog created in the second half of 2019 led by scarcity of import quotas.

Furthermore, Chinese market participants had already pre-anticipated coal import rules to tighten in the second half of 2020 and therefore engaged in substantial panic buying. China's rising animosity with Australia had also aggravated concerns about the trade relationship between the two countries.

--Exports to Japan continue on a declining trajectory

Australia's biggest coal export market - Japan - imported roughly 56 mn t of Australian coal in 2020 so far, down 12% year-on-year from 64 mn t in the same period last year.

Japan has traditionally been Australia's largest export destination for thermal coal over the past two decades. But under pressure from cheaper renewable energy and reducing electricity demand, capacity utilization of Japanese coal-fired power plants is collapsing drastically in recent years and in turn, reducing thermal coal imports.

Australian thermal coal exports to Japan peaked back in 2015, while since then, the development pipeline for new coal-fired power plants in Japan has fallen from around 12,600 MW to just over 4,580 MW, representing a 64% decline as the country increasingly turns towards renewable energy solutions, and moving away from thermal coal.

An IEEFA report released last year forecasts Japan's coal-fired power capacity could contract dramatically going forward, and this trend is set to accelerate in the long term, affecting Australia's thermal coal exports even further.

In addition to the declining Chinese and Japanese markets, Australia's other major coal export destinations - South Korea, India and Taiwan - also imported lesser quantities in 2020 until July as compared with the year-ago period.

The following table presents detailed country-wise breakups of coal exports from Australia.

[Quantity in million tonnes (mn t)]

By Aditya Sinha