Australian coal mining companies are searching for alternative markets for their thermal and coking coal, as the possibility of a trade dispute with China is on the increase with the introduction of a tariff of 80.5 pc on imports of Australian barley.
Diplomatic relations between China and Australia have been strained in the last few weeks after Canberra called for an investigation into the early stages of the Covid-19 outbreak. Beijing maintains that the tariffs on barley are part of an anti-dumping inquiry launched prior to the outbreak of the pandemic. Canberra said that it will not respond to the new tariff, but the industry is concerned about an increase in trade tensions, especially in view of reports that China is clamping down on the import quotas of Australian coking coal and may be preparing to suspend imports of Australian thermal coal from 1 July.
China is better able to use coal as a trade threat to Australia than iron ore because it has alternative sources of coal supply, both domestically and from other exporting countries.
Australian coal mining companies are looking to diversify shipments to South East Asia , in particular Vietnam, and to try to build market share in more mature markets in North Asia if access to China becomes more difficult. Many do not believe that China will be able to stop the supply of Australia's coal, but are concerned about its ability to cut it.
China's imports of Australian thermal and coking coal were high in the January-March period, as the market reopened after the Chinese import quotas had been filled in the second half of 2019, according to the latest data from the Australian Bureau of Statistics. April also seems to have been a fairly strong month, according to port results. However, initial shipping data show that fewer ships were loaded at some key ports in the first half of May.
The Queensland ports of Dalrymple Bay and Gladstone, which tend to be used by some of the smaller coal mining companies with more short-term contracts or spot sales, have seen particularly low shipments over the past three weeks, despite not reporting any problems with their facilities. There have also been less shipments from the New South Wales port of Newcastle, which focuses on thermal coal exports from both high-grade low-cost mines and some mid-tier companies.
Australian mining companies are reluctant to accept plans to cut production at this stage , particularly as many of them are tied to take-or-pay contracts for rail and port use, which means they have to pay for using the infrastructure, whether or not they use it. This locked-in price slows down Australian producers' production in a low-priced environment.
