Dalian port’s block on Australian coal imports is a political decision taken by Beijing, say our industry contacts. It is partly retaliation for what is seen as Canberra’s recent unfriendly actions towards Chinese interests, and partly to create room for more coal imports from the USA. They expect more ports will follow suit. While a complete ban on Australian premium-quality coking coal imports is seen as unlikely, those set to benefit from the policy shift include domestic producers, and exporters in Mongolia, Russia, South Africa and potentially the USA. Domestic steel mills’ costs will rise. IPPs may have to pay more for thermal coal from other overseas suppliers.
Beijing began to curb imports from Australia at least a month ago, and some regional customs administrations (eg, Rizhao and Qingdao ports in Shandong, Shantou in Guangdong) were already actively imposing restrictions in January. The policy was launched by the Ministry of Commerce (MoC) rather than the NDRC (the country’s top planning bureau which is traditionally in charge of the coal sector). The coal industry association seems to have been surprised by the MoC move as it had, until recently, been relatively positive on Australian imports for this year. It estimates imports in 2019 will be between 260mt and 280mt, similar to that in 2018.
The MoC response appears to be guided by a desire to fight back against the Australian government’s accusations against China relating to cyber security, as well as forbidding China’s high-tech telecom equipment supplier Huawei from joining the 5G network development in Australia. A senior industry source says, ‘this is a political rather than a market-related decision.’ We heard a similar view from other contacts. In fact, the Customs office in Shantou (Guangdong) even requested local ports to do their best to accept as little coal as possible imported from Oceania, which means both Australia and New Zealand are on the restriction list. The Qingdao (Shandong) Commodity Inspection Bureau requested the ports in Qingdao to stop conducting customs declaration procedures for thermal coal from Australia in late January.
No willingness to compromise
Our contacts expect more ports to follow suit in the near future because he doesn’t think politicians in either China or Australia are willing to be the first to compromise, a view shared by the coal traders and importers we track. China’s Foreign Ministry spokesman denied at a routine press conference on 23 February that any regional customs office has banned Australian coal. But he admitted the authorities have enhanced quality inspections on coal recently to protect the environmental safety and the legal interests of Chinese enterprises. Our contact interprets this diplomatic language as meaning; “I won’t say that specifically but you should know what I really mean”.