Coal Returns As A Flash Point In Australian Trade With China

Australia’s relationship with China might have taken a turn for the worse with reports surfacing that a ban has been placed on Australian coal exports by Chinese authorities.

A crack-down on coal had been expected for some time, following cutbacks in Australian agricultural products, including wine and barley.

Coal, however is in a different league, second only to iron ore in value to Australia.

Painful for Australian coal exporters, the share price of Whitehaven Coal dropped by 5% immediately after first reports of the possible coal ban surfaced earlier today, it is not known how extensive the Chinese action might be.

Australia’s Trade Minister, Simon Birmingham, said he had been unable to confirm with the Chinese Government whether a unilateral coal ban had been applied.

We’ve Been Here Before

The Australian Treasurer, Josh Frydenberg, said there had been issues in the past with China about coal and “we’ve been able to work through those.”

Macquarie Bank said in a note to clients earlier today that verbal warnings last month to importers from the Chinese Government led to a coal buying rush and the diversion of some Australian coal shipments to other markets.

Glencore, which has an extensive coal mining business in Australia, has been concerned for some time that the worsening relations with China would lead to a crackdown on coal exports.

Not Favorable For Australian Coal

In August, the chief executive of Glencore, Ivan Glasenberg said the Australian relationship with China, which worsened significantly during an argument over the root cause of the Covid-19 pandemic: “is not favorable for the coal business.”

ANZ Bank, in a note published early today as reports of the coal ban surfaced, said that its checks with sources in China revealed a confused situation.

“While it appears some Chinese buyers have received (news of) the verbal ban, others have not heard a thing,” ANZ said.

The bank added that the ban might not be directed entirely at Australia with other import sources also receiving the verbal directive.

ANZ said the move by China was probably aimed at lower quality coking (steel making) coal which is in over-supply in China. Premium quality coking coal, such as most of the material exported by Australia remained in strong demand.