'Game over for Australian coal'

MORE Australian coal mines closures seem possible as China unexpectedly revived the coal import tariffs it cast off last decade.
'Game over for Australian coal' 'Game over for Australian coal' 'Game over for Australian coal' 'Game over for Australian coal' 'Game over for Australian coal'


Blair Price

Effective from October 15, China’s anthracite and coking coal imports will be taxed at 3% while thermal coal will attract a 6% import tax.

The move winds back the clock with China completely scrapping tariffs on coking coal imports in 2005 and on thermal coal imports in 2007.

Australia’s coal industry is already expected to be the worst hit by the policy shift.

“This is obviously another move to shore up the local coal industry,” Shanghai-based ICIS-C1 Energy analyst Deng Shun told Bloomberg.

“Australian coal will probably be worst hit, as it was China’s top coal import source this year.”

The timing of the news could not be much worse for Australia’s coal industry, which this year was already facing arguably the toughest business conditions in two decades.

WoodMackenzie coal analyst Ben Willacy had recently estimated that 13 metallurgical coal operations in Australia were producing at a loss under the existing exporting regime.

Independent analyst and author of StockAnalysis Peter Strachan told the ABC that China’s import tarrifs would also make marginal coal mines in Australia unprofitable.

"There are certainly some projects now that are running very close to the wind, and I think another impost like that would be enough to tip the balance in many cases," Strachan said.

Coal traders told Reuters that Chinese buyers were willing to pay $US65 a tonne for 5,500 kilocalories per kilogram-grade thermal coal before the tariffs were announced compared to Australian offers of about $65/t for this commodity.

"With the latest tax, Chinese can only offer around $62, which means Australian sellers will need to cut prices by about $3.50-$4 a tonne," a senior trader at major international trading house told the newswire.

"It is game over for Australian coal."

The tariff imposts were announced amid free trade agreement talks between the Australian and Chinese governments, with leading thermal coal exporter Indonesia thought to be immune from the Chinese import taxes due its FTA with China.

Minerals Council of Australia chief executive Brendan Pearson told the Australian Financial Review he was hopeful the tariffs would only be in place for a month while Australian negotiations on a FTA with China were concluded.

He said he did not expect the tariffs to cause mine closures or job losses in Australia.

"We are seeking elimination of tariffs for Australian exports in so many areas, but including the coal exports, and it does underline the importance of concluding the free trade agreements to shore up our competitive position," Trade Minister Andrew Robb said, according to the ABC.

"There’s still substantive issues but we have got a timeline that should take us to conclusion before the end of the year.

"Australia has got among the highest quality coal in the world; [China] will still consume nearly a billion tonnes more coal over the next five years through to 2020, and Australia will, I think, be very competitive in securing so much of that increase."

Australia Prime Minister Tony Abbott has previously said he’d like to see a FTA struck when the Chinese president visits the country in November for the G20 summit.

Last month the Chinese government created uncertainty with its air quality-based plans to curb high-ash and sulphur thermal coal imports, which will be effective from January 1.

At the time WoodMac estimated that about 39Mt of Australia-exported thermal coal to China was exceeding the 16% ash limit.

“On an equity basis the largest exporters of this high-ash coal are Glencore, BHP Billiton and Rio Tinto, which together represent over half the total high exports from Australia,” the research and consulting group said.

“Australian exporters would be able to change the processing of the coal to meet the 16% ash limit, however, the associated increase in cost would threaten the economics of these exports.”

However, these restrictions were also expected to impact supply from China’s domestic coal industry which could end up attracting more high quality coal imports from Australia and Indonesia.