China-Australia relations: ‘surge’ in Australian coal inquiries amid reports Beijing set to end import ban

Chinese buyers have stepped up inquiries for Australian coal following reports Beijing is set to lift its unofficial import ban, according to traders, analysts and academics, amid a thawing of bilateral relations despite no official announcement.

China’s state planner, the National Development and Reform Commission (NDRC), is reported to have held talks with four state-owned importers on Tuesday over a partial lifting of the verbal ban on Australian thermal and coking coal that has been in place since 2020.

“While there have been no reports of any deals concluded – yet, there has certainly been a surge in Chinese inquiries for Australian-origin coals over the past couple of days,” said Atilla Widnell, the co-founder and managing director at commodity market intelligence platform Navigate Commodities.

China’s relationship with Australia turned sour when the previous Morrison-administration discussed a probe into the origins of the coronavirus with other world leaders, resulting in trade blocks and tariffs on a wide range of goods, including coal, lobsters, wine and barley.

“There are talks in the market that higher authorities in China have given in principle approval to accept Australian coal for usage by three power plants and one steel plant,” said Deepak Kannan, the head of global coal pricing at S&P Global Commodity Insights.

“The timeline on when the cargoes may be bought remains unclear.”

The NDRC did not respond to a Post request for comment over the reports that it will allow China Baowu Steel Group, China Datang Corporation, China Huaneng Group and the China Energy Investment Corporation to resume imports of Australian coal.

The Australian Department of Foreign Affairs and Trade, meanwhile, acknowledged the possibility of resuming coal trade relations with its largest trade partner.

‘Natural partners’ China, Australia ‘rebalancing the equation’ after 50 years

“It has been the Australian government’s consistent view that the resumption of normal trade across the board between Australia and China would be in both countries’ best interests,” a department spokesman said in a statement according to multiple media reports in Australia. “That is true also of coal.”

Later on Friday, Reuters reported that China Energy Investment Corporation had placed an order to import Australian coal.

Zhai Yu, the lead coal market consultant for China at data provider Wood Mackenzie, said the first procurement of Australian coal may be going through the tender process, which could materialise after the Lunar New Year holiday at the end of January.

“The delivery cost for Australian coal to China ports is roughly 1,150-1,200 yuan (US$167-US$174) per tonne, which is similar to the current China domestic price,” he added.

“We expect the China domestic price to slide down in January as Chinese New Year approaches, which will cut coal demand significantly. With the downward forecast of the domestic market, we think it is difficult to import Australian coal at such a large volume.”

Tensions between China and Australia are seen to have eased under the Albanese administration in Canberra, highlighted by a meeting between the Australian prime minister and President Xi Jinping in November.

“Should such mutual trust fail to eventuate, it is likely to affect much more important export items from Australia to China, such as iron ore and LNG, on a long-term basis,” said Zhuang Bin Jun, a former regional director at the Western Australian Trade Office in Shanghai.

“From Beijing’s perspective, it cannot afford to reply to such items so important to the Chinese economy in a country that sees China as a geopolitical threat.”

Australian Chamber of Commerce China chair Vaughn Barber said that the removal of impediments to Australian exports and the full resumption of bilateral trade would be a win-win outcome for Australian exporters and Chinese importers, as well as consumers.

In reviewing the ban on Australian coal, China is stepping up efforts to ensure energy security at a time when sweeping coronavirus infections nationwide could “temporarily cripple domestic coal production”, according to Widnell at Navigate Commodities.

He added that the increased demand due to the freezing weather across northern China may also be a factor.

Imports of Australian coal, though, only accounted for 1.9 per cent of China’s total consumption in 2019, according to Zhuang, with China importing around 7 per cent of the total it consumes each year.

“The economic outlook for coal is complicated. In the short-term, China will be looking to secure coal supply in the face of a global crunch on supply, and as domestic economic stimulus initiatives take hold,” said Caitlin Byrne, a business professor at Griffith University in Queensland.

After 2.5 years of tension, China and Australia’s relationship seeks new energy

She added that Australian suppliers have been exploring alternative markets over the past couple of years, so the resumption of shipments to China “won’t necessarily be a matter” of having Australian coal remain at the same rate as before.

Widnell, though, anticipates that Australian coal prices will benefit in the short-to-medium term only if China normalises ties for trade in the commodity.

“Let’s not forget, there were similar reports many months ago which failed to deliver any fruits of this labour,” he added.

Kannan at S&P Global Commodity Insights said that “this possible move is aimed at increasing the number of options for coal procurement, more price competition, and intention to sign longer term deals for power plants”.

According to the energy and commodities information provider, China is expected to step up its coal production in 2023.

“With Australian coal going into China, that may also help China maintain price stability in its own domestic market,” Kannan added.

“However, given the rising number of Covid cases in China, demand may be impacted in the near term.”

Australia has lodged complaints with the World Trade Organization over Chinese tariffs on its barley and wine, but the blocks on the likes of coal and lobsters are unofficial and have reportedly only been communicated verbally.

China has also previously blocked certain beef and log timber imports due to pest infestations and compliance issues related to cargo certificates and mislabelling.