Foreign media say that the Chinese Communist Party‘s coal war with Australia has backfired. Diagram of coal.
The Chinese Communist Party’s ban on coal imports to Australia is exacerbating the crisis in China’s coal market, as evidenced by soaring coal prices and supply shortages. The cold winter is exacerbating the crisis. According to foreign media, Beijing‘s restriction on coal imports is feared to be lifting a stone to smash its own feet.
China’s coal crisis is exacerbated by the Communist Party’s ban on importing Australian coal
Diplomatic relations between China and Australia have deteriorated sharply since last year. In April last year, the Australian government demanded an international independent investigation into the Chinese Communist virus (coronavirus), infuriating the Chinese Communist Party. China and Australia then became embroiled in a diplomatic spat, with the CCP threatening an economic boycott but Australia saying it would not give in.
The Chinese Communist Party then launched a trade drive to curb imports of Australian beef, wine and barley. The Australian government, in turn, blocked the acquisition of Lion by Chinese dairy giant Mengniu.
In mid-December last year, the Communist Party’s central government formally announced a ban on imports of Australian coal at a meeting with China’s major power producers, who are big buyers of thermal coal. The Wall Street Journal said government and state media reports indicated the ban complicated the supply crunch the meeting was designed to address.
Australia is the world’s largest exporter of coking coal for steelmaking and the second-largest exporter of power coal for power generation. Australia is also the largest supplier of power coal to China. There is a shortage of power coal in China, but Chinese Communist Party officials are urging these companies to import more power coal from other places than Australia. To comply, Chinese buyers have had to pay a hefty premium for imports from further afield, in addition to a power coal price that has risen 84 percent since the middle of last year.
“Coal buyers are watching the import market nervously,” the China Coal Transportation and Marketing Association, which represents importers, said in a statement, adding that “coal stocks are low and short while demand is unabated and difficult to replenish.”
Coal supplies about 60 percent of China’s energy consumption, more than half of which is used to generate electricity.
With temperatures in northern China falling to a 40-year low, the coal crunch has prompted Beijing to turn to global markets. The National Development and Reform Commission has shunned Australia despite abandoning import quotas.
Beijing faces the problem that while it can try to increase imports from other seaborne suppliers such as Indonesia, South Africa, the U.S. and Russia, there may be cost issues and it may not be able to secure enough supplies in the short term, Reuters previously wrote.
On December 30, 2020, two large state-backed Chinese coal index companies said the market was very confused, the China Daily reported.
“The government needs to take measures to increase coal supply and guide the market back to a reasonable range as soon as possible.” The China Electricity Council, which owns one of the indexes, said in a statement.
China’s coal problem is not solved, and longer-term high prices could drag down China’s manufacturing sector and risk public outcry, the China Daily reported.
China’s retaliation against Australia threatens to lift a stone and smash its own feet
From Norwegian salmon to Mongolian goods, the Chinese Communist government has increasingly used China’s buying power to exert political pressure overseas in recent years, but the coal market suggests the ploy could backfire, according to China Daily. Even as Chinese buyers have heeded Beijing’s demands not to buy Australian coal, Australian coal prices have rebounded as buyers from other big coal-consuming countries, including Japan and India, have stepped in.
In the seven months to January this year, Chinese high-grade power coal prices soared to a record of more than $130 a tonne, almost twice the mid-year level.
Australia is known for its abundance of high-quality coal. In China, where the shortage of this grade of coal is most acute, it has traded at up to twice the price of its Australian counterpart in recent weeks, the Commodity Price Database shows. Some Chinese buyers have had to accept prices of up to $139 per tonne in domestic deals, industry sources said.
Chinese importers have had to travel as far as North America to find alternative sources, paying a $100 premium over Australian prices for U.S. coal last month, Argus, a commodity pricing service, said in a report.
Reuters columnist Clyde Russell made a similar observation about Beijing’s restrictions on coal imports in an article in December 2020. According to the article, the Chinese Communist Party’s restriction on coal imports may have lifted a stone and smashed its own feet, as coal prices in China continue to rise as we enter the winter demand season.
According to the article, restrictions on Australian coal imports have apparently boosted the price of alternative imports, such as Indonesian and South African coal. Ironically, perhaps the higher prices of alternative imports have also boosted the price of Australian power coal along the way.
China’s coal industry, I’m afraid, is facing a most unhappy situation, with domestic prices well above the preferred range on the one hand, and higher import prices on the other, making it more expensive than ever to buy no matter how much is imported.
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