China’s End to Australian Coal Ban Symbolic, Analysts Say

China recently announced its decision to lift its ban on coal imports from Australia, after imposing an unofficial ban on coal trade mid-2020. This will allow its top steel maker and a trio of government-backed utilities to begin importing coal. Before the ban, Australia was the second-largest supplier of coal to the East Asian nation.

The ban’s lifting will improve ties between Australia and China, which were strained following Canberra’s request for an investigation into COVID-19’s origins. The request led to China banning imports of wine, barley and lobsters from Australia.

Given that market dynamics regionally and globally have significantly shifted, the chances of trade returning to its previous level is limited. This is despite the fact that Australia is a major producer of coal. Analysts believe that coal from Australia will struggle to compete with China’s prices, particularly on thermal coal.

Prior to the ban, utilities in China imported lower-grade thermal coal from Australia at 5,500 kcal/kg. At the start of this month, the price was $132/ton, which is similar to the price of thermal coal from Russia, which stood at $130/ton. It does not help that the freight rate favors supplies from Russia, given the little time it takes to reach ports in China.

With regard to volume, China was importing 3.5–4.3 million tons of thermal coal from Australia before its ban. Recent data shows that the country imported 4.26 million tons of thermal coal in April 2020. During this month, Australia exported roughly 20% of thermal coal to the East Asian country, which was not significant in comparison to the 69% imported from Indonesia into China.

While China’s overall imports were also affected in the months that followed, they slowly began recovering in November of the same year. By June 2021, thermal coal imports into China had greatly surpassed 2020 levels. This was mainly attributed to Russia, which increased its exports into the East Asian country from less than 1.1 million tons of thermal coal in April 2020 to more than 3.3 million tons.

Since then, thermal coal imports from Russia have remained solid, save for some occasional variations.

Additionally, coal miners in Australia, along with the region’s shippers, traders and bankers, may exercise caution before returning to the Chinese market after they incurred unexpected losses in 2020. They may also be opposed to redirecting coal away from buyers they acquired after the ban.

This means that it may take some time for trade between the two countries to resume to previous levels, and with the market share occupied by Russia growing, it’s hard to see Australia becoming a big player in the Chinese market again.

Regardless of how the coal trade between Australia and China pans out, the global demand for this fuel doesn’t show any sign of abating if the uptick on the books of extraction companies such as Arch Resources Inc. (NYSE: ARCH) is anything to go by, so Australia is likely to have buyers for all the coal it produces.

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