Thu, Mar 28, 2019 - Page 9 News List

Australia’s coal export bonanza under threat

By Martin Farrer and Ben Smee  /  The Guardian

The number of Chinese ports restricting or delaying Australian coal imports has continued to rise, threatening to end the export bonanza that is bloating Australian federal coffers and signaling a possible painful long-term structural change to the economy.

In an ominous development for Australia’s trade balance and federal budget, traders and buyers in China on Thursday last week reported that the holdups for Australian shipments that began last month have spread from the northern Port of Dalian to Fuzhou in Fujian Province and Rizhao near Qingdao.

Industry news agency Platts reported one market source as saying that Australian thermal coal used for power generation has been “largely forgotten” by Chinese buyers as they have switched preference to delay-free imports from Indonesia and Russia.

The reports have seen a sharp drop to the share price of Australian pure-play coalminers.

New Hope Corporation shares were down more than 20 percent this week after it warned of a sharp fall in exports bound for China, while Yancoal has fallen 9 percent.

However, the effect will not be limited to the coal sector. The commodity is Australia’s second-biggest export earner and demand from China accounts for 3.7 percent of Australian GDP — although half of that comes from exports of coking coal, which is used for steel production.

The benchmark price for high-energy Australian thermal coal has enjoyed a buoyant few years of prices above US$100 a tonne.

The figure has now dropped below US$90 a tonne for the first time in nearly two years, threatening some of the export-duty windfall Australian Treasurer Josh Frydenberg can expect to highlight in his budget next month.

A steep fall could also hurt the Australian dollar.

It remains unclear why Australian imports have been targeted for the holdups at customs. Official explanations from China have mentioned the need for environmental checks and even a suggestion that imports needed to be inspected for radioactivity.

However, few doubt that there is a considerable political dimension.

Tension between Canberra and Beijing has been growing over the past few years amid concern about China’s military ambitions in the South China Sea, but has intensified over the reach of technology companies such as Huawei Technologies Co and ZTE Corp, the “state actor” cyberattack on Australia’s Parliament House and the rejection of Chinese billionaire Huang Xiangmo’s (黃向墨) visa.

However, there are also intriguing market-centred reasons why China might want to reduce its reliance on foreign resources and which suggest that Australia’s coal industry could be facing a more existential threat.

Alex Turnbull, founder of the Singapore-based hedge fund Keshik Capital, said that the port slowdown is a result of wide-ranging changes in the Chinese economy.

A huge expansion of rail infrastructure in the past decade has enabled China to begin exploiting its vast inland coalfields in areas, such as Inner Mongolia and Shanxi Province, in a way that has not previously been possible, he said.

Thermal coal imports were unheard of before 2008, but they boomed to fuel the massive economic stimulus ordered by Beijing in the wake of the global financial crisis, Turnbull said.

At the same time, China’s National Development and Reform Commission started adding millions of tonnes in freight capacity to the Chinese rail system, so that cheaper domestic coal could be shipped to coastal centers of heavy industry and population, he said.

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