Australian coal seeks alternate markets to China

Australian coal mining firms are looking for alternate markets for their thermal and coking coals, as the threat of a trade dispute with China ramps up with the imposition of an 80.5pc tariff on imports of Australian barley.

Diplomatic relations between China and Australia have been strained in recent weeks after Canberra called for an investigation into the early stages of the Covid-19 outbreak. Beijing argues that the barley tariffs are part of an anti-dumping investigation that was started prior to the emergence of the pandemic. Canberra said it will not respond to the new tariff, but the industry is concerned about a ramping up of trade tensions, particularly given reports that China is clamping down on import quotas of Australian coking coal and may be planning to suspend imports of Australian thermal coal from 1 July.

China is better able to use coal as a trading threat to Australia than iron ore because it has alternate sources of supply, both domestically and from other exporting nations, for coal.

Australian coal mining firms are looking to diversify cargoes to southeast Asia, particularly Vietnam, and to try to build market share in more mature markets in north Asia, in case access to China becomes more difficult. Many do not think that China will be able to stop delivery of Australia coal, but are concerned about its ability to curtail it.

China's imports of Australian thermal and coking coal were strong in the January-March quarter, as the market reopened following a filling of Chinese import quotas in the second half of 2019, according to the latest Australian Bureau of Statistics data. April also seems to have been a reasonably strong month, according to port data. But initial shipping data show fewer ships being loaded at some key ports in the first half of May.

The Queensland ports of Dalrymple Bay and Gladstone, which tend to be used by some of the smaller coal mining firms with more short-term contracts or spot sales, have seen particularly low shipments over the past three weeks, despite not reporting any problems with their facilities. There have also been fewer shipments from the New South Wales port of Newcastle, which focuses on thermal coal exports from both high-grade low-cost mines and some mid-tier firms.

Australian mining firms are reticent to admit to plans to cut production at this stage, particularly as many of them are tied into take-or-pay contracts for rail and port usage, which means they must pay to use the infrastructure whether they use it or not. This locked-in price makes Australian producers slow to cut production in a low-price environment.

By Jo Clarke

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