Keep calm and continue cutting coal

WHILE Australian coal miners’ share prices were smashed last week on news China’s Dalian port complex had stopped processing coal imports, the coal industry and Australia’s trade minister have reminded investors of the nation’s longstanding trade relationships with China.
Keep calm and continue cutting coal Keep calm and continue cutting coal Keep calm and continue cutting coal Keep calm and continue cutting coal Keep calm and continue cutting coal

The coal industry is urging calm in response to the temporary hold up of Australian imports into China via five ports in the Dalian complex.

Trade Minister Simon Birmingham said, after consulting with China's ambassador to Australia Cheng Jingye over the weekend, that he believed there had been a "temporary blowout in processing times" affecting Australian coal.
 
Coal Council of Australia CEO Greg Evans said the temporary impasse over the coal shipments should not lead investors to jump to conclusions over coal trade with China.
 
‘‘There needs to be some cool heads in reaction to the developments in the China coal trade,'' Evans reportedly told The Australian.
 
"Over a lengthy period, our coal exports to China have faced routine ups and downs which our industry has worked through.
 
"We have to be cautious in interpreting any more than that in these latest circumstances.
 
"China is a key market and, in its own right, it is the world's largest coal producer by a significant margin, so balancing domestic supply considerations with import requirements will alway­s present uncertainties."
 
The Reserve Bank governor Philip Lowe last week expressed concern about the economic impact of a protracted ban with the nation's biggest trade partner.
 
Lowe told the House of Representatives Standing Committee on Economics that the restriction on Australian metallurgical coal exports from entering China would not have "a dramatic effect" on the economy, but it was important to "wait and see" what the underlying cause of the ban was.
 
The dollar plunged by more than 1% on the initial wire reports of the ban from the critical five Dalian ports that threatens to derail an important swing market for Australian coal exporters.
 
Australia exported about 36 million tonnes of metallurgical coal to China last year, 20% of Australia's total met coal exports.
 
Market darling Stanmore Coal was sold down by 3.8% in morning trade on Friday despite issuing a statement that its main markets were in Japan and Korea.
 
"The significant majority of Stanmore Coal sales and all of its long term contracted sales are to customers in Japan and Korea," it said.
 
"Stanmore has limited exposure to China through spot sales which are also made to customers in a range of other countries.
 
"Stanmore will continue to monitor the situation to determine whether there will be any impact on the company's coal sales."
 
Other Australian coal miners that were hit include New Hope Coal down 4.4%, Bounty Mining down 12%, Chinese majority-owned Yancoal down 3.7% and Whitehaven Coal down 1.6%.
 
Suppliers to the coal mining industry were not spared either with underground coal contractor Mastermyne down 3% and Emeco down 3.8%.
 
China imported 271 million tonnes of coal from January to November last year.
Wood Mackenzie senior consultant Yu Zhai said China's seaborne metallurgical coal imports were expected to reduce by 3Mt in 2019 as a result of China's coal import restriction. 
 
"The high quality of seaborne coal, and difficulties securing alternative coals domestically, should insulate coal exporters from much deeper cuts, despite strong signals from China," he said.
 
"Australia would account for most of the volume reduction as it represented more than 75% of China's seaborne metallurgical imports in 2018. 
 
"China's seaborne thermal coal imports are estimated to reduce by 15Mt in 2019, taking into account the risk of wider coal import restriction. Australia could also be most affected by a similar restriction."
 
On implications on metallurgical coal, Wood Mackenzie's research director Robin Griffin said a  prolonged China-wide ban could have enormous implications for markets in both countries. 
 
"The possibility of adverse impacts on China suggest a long-term ban is unlikely," he said.
 
"Some of the most prominent impacts could include Chinese domestic prices would spike. 
 
"Prices for low sulphur premium coals in particular would rise as importers scramble to replace Australian coals. We expect that short-term replacements will be hard to find domestically."
 
Griffin said Mongolian coal imports could rise substantially in order to replace Australian coals. 
 
"Weaker coals make up the majority of Mongolian exports so in the short term direct replacements for Australian coals would be limited," he said.