Thu, Mar 28, 2019 - Page 9 News List

Australia’s coal export bonanza under threat

By Martin Farrer and Ben Smee  /  The Guardian

“What is happening now is that the infrastructure schemes have caught up with demand and therefore imports are going to dry up,” Turnbull said. “We’ve been waiting for the time when China turns off the demand for Australian coal imports and this appears to be the moment.”

He said that there is a “political element” to what was happening, but emphasized the seismic shift occurring below the surface.

“Focusing only on those political issues risks missing the bigger overall picture, which is that the market for thermal coal is going to shrink. The total of Australian thermal coal imports to China is going to go down,” he said, adding that China also wants to boost its current account surplus by reducing imports and supporting its currency.

Other analysts see a less decisive change and say that the port slowdowns are a blunt and deliberate move by China to bring about a correction to coal prices, which remain above what the Chinese government expects to pay.

“At a fundamental level, this is happening because the Chinese government wants to protect its own coal industry,” said Rory Simington, principal analyst at global energy consultancy Wood Mackenzie.

“The government wants to have prices high enough for its own producers, but it wants to keep imports out so that the benefits flow to domestic producers and not to Australia and elsewhere,” he said.

Import slowdowns of the type affecting Australian coal now are not new, but the new element is that Australian coal is being specifically targeted, Simington said, adding that the proof is that while Australian coal prices have fallen in the wake of the restrictions, the price of Indonesian coal has risen.

“People who are buying Australian coal have switched,” he said. “If you have a vessel that is sitting outside a port for three months waiting for clearance you’re going to buy Indonesian or Russian coal, which isn’t going to be delayed.”

Although Simington does not believe that Australian coal exporters face a mortal threat, producers would have to divert their coal to other markets if Chinese demand dries up completely.

Alternative buyers are principally India, Europe and other Southeast Asian countries, but prices would be lower, he said.

A fall of US$5 per tonne in the cost of low-grade, or high-ash coal, which makes up the vast majority of exports to China, could cost Australia US$200 million a year, he said.

With no official pronouncements from Beijing about its intentions for Australian coal, Andrew O’Neil, a professor of political science at Australia’s Griffith University, said the situation is difficult to read and has left many analysts puzzled as to China’s motivation.

However, he said that Beijing’s diplomacy could be more nuanced than many supposed and that the leadership has a track record of using subtle signaling to manage its relations with other countries.

The coal import ban could therefore be seen as “very carefully calibrated, O’Neil said.

“This is not going to torpedo the Australian coal industry, but China could torpedo Australia’s coal industry if it wanted to ... so they’re looking to send a signal,” he said. “If I had to put money on it, I would say there was a political and strategic dimension to this decision.”

This story has been viewed 2721 times.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top