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Although China has brought a $149 billion industry in Australia to its knees, hope has come in a new form — coal.
In May, China promised “economic pain” to Australia by reducing its iron ore purchases, predicting that would wipe off $32 billion off our economy.
And it appears to be working. Earlier this week, the price of iron ore dropped a whopping 9 per cent in one day, the second biggest decline on record.
However, a new export, coal, has risen to supremacy in the stead of iron ore.
When markets closed on Monday, metallurgical or coking coal was selling for $274 a tonne, very near the all-time high of $299.33 a tonne in November 2016.
The $274 cost was below its close last Friday which was the highest price for coal since April 2017.
In the past year, coal has been up 170 per cent.
That’s despite China unofficially banning coal since October last year, with power companies warned off the Australian commodity.
In fact, Peter Cai, director of the Lowy Institute’s Australia-China Relations Project, believes China is accidentally shooting itself in the foot and bearing the brunt of those costs.
Mr Cai said it was “entirely possible” that China is paying premium rates for coal because it needed to buy from a middle man rather than directly through Australia — which means its price was higher.
That would also mean the demand from China is still there, buoying the prices.
“It’s entirely possible that some shipments have been sold via a third country, to get around the unofficial bans,” he told news.com.au.
Reports claim China is paying $595 a tonne for coal, which is more than double what Australian coal producers are selling it for at $274 a tonne.
The spike in coal was also aided by China through another unforeseen consequence of its ban — pushing other buyers into Australia’s path.
As coal floundered last year by the sudden drop in demand, the bargain prices were quickly snaffled up by other countries.
“While hard coking coal exports to China have diminished since mid-2020, increased exports to India, Japan and South Korea have offset some of the fall,” the ABS confirmed.
Mr Cai added, “Think of it as a bath tub. Everyone tips water into the bathtub. If China is not drawing from it, it evens out eventually.
“It’s not a huge decline. In a way, we were able to find other buyers.”
Immediately after the ban on coal, China experienced another backfiring — by cutting off the much-needed energy import, millions of its citizens were plunged into darkness as a result of electricity shortages.
Australia’s Department of Industry, Science, Energy and Resources said back in June — before the past week’s spike in price — that the coal industry was “recovering moderately”.
The Australian premium hard coking coal price is forecast to increase from an average $193 a tonne in 2021 to around $212 by 2023, the report found.
Coal exports are predicted to rise from a 2020–21 low of 171 million tonnes to reach 186 million tonnes by 2022–23.
“Supply chains disrupted by China’s informal import restrictions have largely reorganised, albeit with some loss of revenue,” the report added.
Australia’s metallurgical coal is expected to bring $22 billion into the economy this year, and an even larger sum of $32 billion by the 2022–23 financial year.
Source: news.com.au