Miners hopeful of end to China’s two-year Australian coal ban

“We will wait and see what happens … but we are also committed to the existing customer bases that we have.”

A deterioration of diplomatic ties between Australia and its biggest trading partner in 2020 led to China slapping hefty tariffs on a range of Australian goods, including wine and barley, while an outright ban on Australian coal left dozens of vessels stranded off the coastline unable to dock.

At the time, China’s coal ban added to the financial pain facing exporters of coal and other fossil fuels, which had been hit hard by the shock of the COVID-19 pandemic wiping out demand for energy and sending commodity prices plunging. However, the ban ultimately forced global trade flows to realign, leading to Australian producers sending more shipments from local shores to other markets, including South-East Asia and India.

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Coal prices have since surged to near-record levels as Western nations shun Russian cargoes to starve Moscow of the revenue it needs to fund the war in Ukraine, intensifying competition for Australian shipments.

The nation’s combined coal exports, including metallurgical and thermal coal, are now forecast to earn $132 billion in 2022-23, overtaking iron ore as Australia’s single most lucrative export.

Despite accelerating pledges among countries to wean themselves off the emissions-intensive fossil fuel, the International Energy Agency last month declared world coal use was likely to have risen 1.2 per cent in 2022 to a record high.

However, the longer-term outlook for Australia’s coal industry remains deeply uncertain. Power generation from renewable energy continues to rise, large resources companies are increasingly divesting or announcing closures of their coal assets, and financial institutions are pledging not to make new investments in the sector, citing concerns about its future demand and global warming.

Australia’s Department of Foreign Affairs and Trade on Thursday said it was aware of reports that Chinese importers may purchase Australian coal this year. “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 interest. That is true also of coal,” a DFAT spokesperson said. “Meanwhile, the Australian coal industry has been highly successful in finding alternative markets.”

The potential easing of the Australian coal ban could mean Chinese steel mills will again source high-quality Australian metallurgical coal to use in their steel-making furnaces, pushing coal from the US and Canada back to their original markets.

However, analysts at investment bank Morgan Stanley said the potential impact on thermal coal – the type of coal used to generate electricity – may be more muted while prices remain at high levels.

“We do question whether the impact on the thermal coal market is going to be significant and whether trade flows will revert meaningfully,” Morgan Stanley’s Marius van Straaten said. “China’s utilities appear happy to import relatively cheap lower-quality [calorific value] Indonesian coal, as well as heavily discounted Russian cargoes, and utilities might be reluctant to pay up for more expensive Australian thermal coal.”

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