China gives vague response to reported restrictions on Australian coal imports
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The week started with the hearsays in the market that Chinese utilities and steel mills have been given a verbal notice by the government to stop thermal and coking coal imports from Australia with immediate effect. This news attracted extensive attention from the international market and moreover worried the Australian coal industry participants.
Where did it all start?
In March this year when COVID was declared as a pandemic, the bilateral tensions between the two countries intensified further amid Canberra's call for an international investigation into the origins of COVID-19.
On 22ndSeptember, during 75th United Nations General Assembly, China announced a long-term environmental protection strategy proposing to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060.
Although it is a long-term plan, post National Day Holidays (ended on 10 Oct) rumours about China banning Australian coal imports started doing the rounds in the market.
Fact-checking the rumors
When investigated, the Chinese market participants response to this rumor are as follows:
- One trader said that he has received the notice from the port authority to be careful (assess coal-exporting country) before purchasing the imported coal next year.
- Two traders said that they had heard the rumours, but believe that the authenticity of the information needs to be verified.
- Two steel mills added that they have not received the notice of forbidding import, but imports of coal have become very difficult through customs, and it has become impossible to enter without notice.
- While few ports said they have not received a clear message about the prohibition on imports of Australian coal.
Hence, the uncertainty in the market continues to prevail and it is necessary to pay close attention to the development of policies. However, the market participants confirmed the news that traders are cancelling vessels booked from the Australian miners.
Customs department's vague reply
China's Customs department has given a vague reply to the Australian Govt. seeking clarification on the reports of a ban on Australian coal. It replied that China's export to Australia over the past three quarters were that of mechanical and electrical products, which is up to 75.7% of China's total exports to Australia.
On the other hand, the staple material imported from Australia were iron ore, natural gas and coal, which accounts for 76.4% of the total import from Australia.
Subsequently, the Customs department will step up the monitoring process and control the relevant products for import. Detailed answers will be given to governing organizations.
However, a ban is unlikely as China relies heavily on Australian coking coal and iron ore (two key raw materials for steel making).
Implications of ban by China
During Jan-Aug'20, Australia exported about 57.9 mn t of coal to China, down by 5.7% y-o-y basis. With a ban on Australian coal by China, there will be oversupply of both coking and thermal coal in the market and adversely affect global coal prices. Thus, the buyers have retreated to the sidelines waiting for further clarity before taking new positions.
