Is China pulling the Strings on Coal Imports from Australia?

Australia, which is the world's most-China dependent developed economy, has raised Beijing's ire by calling for an investigation into the origins of the pandemic. Subsequently China has started imposing restriction on various imports from Australia under the pretext of safeguarding domestic industry and one such commodity which is under the scanner is coal. Coal is Australia's second biggest export earner and demand from China accounts for 3.7% of Australian GDP.

According to market sources, China's NDRC (National Development Reform Commission) has recently told five of its major state- power utilities not to buy imported coal from Australia.

Moreover, speculation is rife in the market that China will restrict coal imports from Australia with effect from 1 Jul'20 or at the very least buyers could face major delays in customs clearance, amid growing diplomatic tension between the two countries.

Import curb fear fuels frenetic buying

o Amid this ongoing ruckus, the Chinese coal bookings from Australia have surged in the past few weeks, amid expectations that bookings made prior to any official announcement will be accepted. According to the vessel line up data with CoalMint, in the time span of one month, the country's coal imports from Australia has surged by 14% from 1.91 MnT to 2.17 MnT.

o Additionally, one of the reasons that Chinese are stocking up Australian coal is that the latter is cheaper against domestic coal. The 5500 kacl/kg of thermal coal from Australia to China is available at USD 50/MT (RMB 355/MT as on date), CIF basis against USD 485-490/MT, FoB Qinhuangdao.

o Another apparent reason for surge in imports is that imported coal is set to turn costlier from 1 July as port surcharge and port handling fee in China will be levied again. The same was lowered by 20% for three months (1 Mar - 30 Jun) in order to ease logistics concerns during pandemic.

CoalMint's Expectation

The strict measures by the Chinese government to curb imports amid escalating political tensions with Australia and in an effort to protect domestic industry, Chinese buyers are likely to divert their Thermal Coal requirements for power generation towards Russia and Indonesia. It is also worth remembering - China's state-backed coal transportation and distribution association (CCTD) had also recently requested the authorities to restrict Australian Coking Coal imports to safeguard domestic producers.