{"id":67200,"date":"2021-09-14T15:15:10","date_gmt":"2021-09-14T05:15:10","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=67200"},"modified":"2021-09-14T15:03:29","modified_gmt":"2021-09-14T05:03:29","slug":"beijings-ban-on-australian-coal-is-hurting-china","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/beijings-ban-on-australian-coal-is-hurting-china\/","title":{"rendered":"Beijing\u2019s ban on Australian coal is hurting China"},"content":{"rendered":"
<\/figure>\n

Every million tonnes of coal has recently been costing China\u2019s steel mills more than US$400 million, compared with around US$250 million paid by steel mills everywhere else. The difference is entirely explained by China\u2019s embargo on Australian coal.<\/p>\n

Since China\u2019s mills use almost 2 million tonnes of coal\u00a0every day, the premium it pays above coal costs in the rest of the world adds up to about US$2 billion a week.<\/p>\n

If the embargo were dropped tomorrow, Chinese mills wouldn\u2019t make that entire saving: world prices would rise once Australian coal started flowing to China, but Chinese prices would surely fall.<\/p>\n

China\u2019s ban on Australian coal purchases from around November last year has caused huge distortions in the global coal market, with separate Chinese and rest-of-the-world pricing developing for both metallurgical coal used by steel mills and thermal coal used by power stations.<\/p>\n

The disruption has been greatest for metallurgical coal. Australian exports account for 58% of the global seaborne trade in metallurgical coal, compared with 21% in thermal coal. In 2019\u201320, China took a little over a third of Australia\u2019s premium metallurgical coal exports and Australia supplied about 55% of China\u2019s metallurgical coal imports.<\/p>\n

As BHP expressed it in its\u00a0annual results report<\/a>, \u2018Australia was both the largest seaborne exporter of metallurgical coal and the largest seaborne supplier to the clearing market, China. Therefore, this bilateral trading relationship was much more than just one of many in a vibrant and competitive global trade\u2014it was the sun around which the other planets of the [metallurgical] coal solar system orbited.\u2019<\/p>\n

The ban caused immediate pain in both China and Australia. A queue of 46 ships carrying around 5\u00a0million tonnes of Australian coal developed off the Chinese coast by December as the Chinese owners of these cargoes tried unsuccessfully to get them landed and cleared through customs.<\/p>\n

The price for Australian coal plunged, while prices inside China jumped, with an immediate gap of US$85 per tonne opening between the two (after allowing for freight). Suppliers from the United States and Canada that traditionally sold coal into Europe switched to China, where they could double their returns, while European mills turned to Australia, where they could get cheap supply.<\/p>\n

China\u2019s authorities assumed that the loss of Australian coal would be made up comfortably by other suppliers and by their own huge reserves. But they were hit by a succession of supply shocks.<\/p>\n

Mongolia replaced Australia as China\u2019s largest source of supply, but the Covid-19 pandemic forced the closure of the two main coal truck routes in May. BHP reported that the trade which had carried 720 coal trucks a day had slowed to a trickle. There was some recovery in July, but then another closure in late August.<\/p>\n

There are limits to the volumes available from suppliers like the US. China\u2019s total metallurgical coal imports slumped from 46 million tonnes in the first seven months of 2020 to 26 million between January and July this year.<\/p>\n

China\u2019s steel mills consume almost 700 million tonnes of coal a year and obtain 88% of it from domestic mines, but imports are crucial both for their quality and for their flexibility in meeting demand.<\/p>\n

However, China\u2019s domestic supplies have also been troubled. A series of fatal accidents has forced the closure of many Chinese coalmines. Last week, a 6-million-tonne-a-year coalmine in Shanxi province was ordered to close for a month after a worker was killed. This followed the closure of 22 coalmines in the province after three mining accidents in June.<\/p>\n

According to the\u00a0South China Morning Post<\/em><\/a>, a quarter of production capacity in Shanxi\u2014the province that produces the most coal\u2014has been shut down for safety reasons. Coalmine closures for safety reasons have also been ordered in Henan and Hebei provinces.<\/p>\n

Following last week\u2019s closure, top-quality coking coal from Shanxi soared to \u00a53900, equivalent to US$613, a tonne. Imported coal for steel mills rose to a record US$412 a tonne.<\/p>\n

The increase in China\u2019s prices has dragged Australian prices higher. Last week, coal was trading at US$274 a tonne, up from just US$100 a tonne after the Chinese embargo was imposed.<\/p>\n

China\u2019s steel mills have been able to pass the increased costs of raw materials on to their customers. With the Chinese steel industry under orders to keep production this year to no more than the 1.06 billion tonnes produced last year, there\u2019s competition among customers to secure supplies, which is pushing steel prices higher.<\/p>\n

The share price of the biggest producer, BaoSteel, has risen by 60% to a record level since June as the force of the government\u2019s production limits has become apparent.<\/p>\n

The cap on steel production is in pursuit of the government\u2019s environmental objectives of improving air quality and capping carbon emissions before 2030, while authorities have also been keen to lessen their dependence on Australian iron ore.<\/p>\n

Imposing trade barriers always causes some harm to the country responsible. There were pleas from China\u2019s breweries not to impose tariffs on Australian barley as it was hard to replace with barley of the same quality. Chinese consumers are being denied Australian lobster, which they valued, and are now paying premiums to obtain it through contraband routes. The Chinese authorities have always thought such costs were minor relative to their broader geopolitical aims.<\/p>\n

However, rising steel costs are now filtering through to inflation more generally. Chinese\u00a0factory gate prices<\/a> rose 9.5% over the year to August, the fastest rate in 13 years.<\/p>\n

While China\u2019s recent curbs on its technology companies, home-tutoring services and entertainment industry have been gathering global attention, it may be that the regulatory interventions in the steel industry, including the embargo on Australian coal, wind up causing the greatest dislocation to the Chinese economy.<\/p>\n","protected":false},"excerpt":{"rendered":"

Every million tonnes of coal has recently been costing China\u2019s steel mills more than US$400 million, compared with around US$250 million paid by steel mills everywhere else. The difference is entirely explained by China\u2019s embargo …<\/p>\n","protected":false},"author":955,"featured_media":67202,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[2212,2750,365],"class_list":["post-67200","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-australia-china-relations","tag-supply-chain","tag-trade"],"acf":[],"yoast_head":"\nBeijing\u2019s ban on Australian coal is hurting China | The Strategist<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.aspistrategist.ru\/beijings-ban-on-australian-coal-is-hurting-china\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Beijing\u2019s ban on Australian coal is hurting China | The Strategist\" \/>\n<meta property=\"og:description\" content=\"Every million tonnes of coal has recently been costing China\u2019s steel mills more than US$400 million, compared with around US$250 million paid by steel mills everywhere else. The difference is entirely explained by China\u2019s embargo ...\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.aspistrategist.ru\/beijings-ban-on-australian-coal-is-hurting-china\/\" \/>\n<meta property=\"og:site_name\" content=\"The Strategist\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/ASPI.org\" \/>\n<meta property=\"article:published_time\" content=\"2021-09-14T05:15:10+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2021-09-14T05:03:29+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.aspistrategist.ru\/wp-content\/uploads\/2021\/09\/GettyImages-625667994.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1024\" \/>\n\t<meta property=\"og:image:height\" content=\"683\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"David Uren\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@ASPI_org\" \/>\n<meta name=\"twitter:site\" content=\"@ASPI_org\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"David Uren\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.aspistrategist.ru\/#website\",\"url\":\"https:\/\/www.aspistrategist.ru\/\",\"name\":\"The Strategist\",\"description\":\"ASPI's analysis and commentary site\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.aspistrategist.ru\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-AU\"},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-AU\",\"@id\":\"https:\/\/www.aspistrategist.ru\/beijings-ban-on-australian-coal-is-hurting-china\/#primaryimage\",\"url\":\"https:\/\/www.aspistrategist.ru\/wp-content\/uploads\/2021\/09\/GettyImages-625667994.jpg\",\"contentUrl\":\"https:\/\/www.aspistrategist.ru\/wp-content\/uploads\/2021\/09\/GettyImages-625667994.jpg\",\"width\":1024,\"height\":683,\"caption\":\"INNER MONGOLIA, CHINA - NOVEMBER 03: A Chinese labourer loads coal into a furnace as smoke and steam rises from an unauthorized steel factory on November 3, 2016 in Inner Mongolia, China. 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