Market Overview

Don't Panic: China Has Not 'Banned' Australian Coal Imports

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Don't Panic: China Has Not 'Banned' Australian Coal Imports

Widespread jitters in the Australian political and business communities that China may have banned imports of Australian coal now appear to be unfounded. Customs clearance delays at Dalian are happening owing to entirely "normal" reasons and coal cargo can be re-routed around a given port anyway, coal mining and coal transport executives have explained to FreightWaves.

Widespread reporting on national and international media have widely alleged that China had banned imports of coal from Australia. There was also widespread speculation that the origins of the so-called ‘ban' were political in nature. Such reporting occurred after Reuters reported the existence of an alleged ban yesterday.

Market reaction was immediate with the Aussie dollar falling against the U.S. dollar. Given that Australian coal exports in 2018 to China were 89 million tons (met-coal and thermal coal combined) and were valued at $15 billion, Australia's federal government quite reasonably caught the jitters too.

Simon Birmingham, the Federal Minister for Trade, Tourism and Investment, released the following statement:

"I'm aware of unconfirmed and unsourced media reports and have asked our Ambassador in Beijing to urgently clarify their veracity. We continue to engage closely with industry on matters of market access. I met with the Minerals Council of Australia this week to discuss market access issues and our related representations to Chinese authorities. China is a valued partner of Australia and we trust that our free trade agreement commitments to each other will continue to be honoured."

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Reports of a ban appear incorrect

However, reports of a ban do not now appear to be correct.

Coal industry executives closely connected the Chinese trade today told FreightWaves that what is happening is normal practice in China as it relates to coal discharging from ships.

Industry observers have told FreightWaves that there was no ‘ban' but there has been a slowdown in customs clearances at Chinese ports since January.

Yan Shuang, a spokesman for China's Foreign Ministry, yesterday told reporters during a press briefing that China's customs authorities were simply inspecting coal imports and emphasized that Beijing wanted normal relations with Australia.

A reporter asked the spokesman if Australia's coal exports were being blocked during customs clearance in Dalian specifically and in China more generally. The reporter also asked whether this was related to recent tensions between Australia and China.

The spokesman responded: "according to the materials I have at hand, Chinese customs conducts risk monitoring and analysis on the safety and quality of imported coal in accordance with relevant laws and regulations and takes corresponding inspection and testing measures. The purpose of this is to better safeguard the legitimate rights and interests of Chinese import enterprises and protect the environment… China's customs conduct risk monitoring and analysis of imported coal safety according to laws and regulations, and take corresponding inspection and testing measures. I think this is completely normal."

The spokesman later added, "I would like to take this opportunity to talk about China-Australia relations. We have repeatedly stressed that a healthy and stable China-Australia relationship is in the common interests of the two countries and the two peoples. We hope that the Australian side can move in line with China and promote the continued development of China-Australia relations on the basis of mutual respect, equality and mutual benefit."

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Don't panic, it's normal

Coal industry executives, who frequently and regularly conduct coal-related business with China, today explained to FreightWaves that the situation is not as it has been portrayed in the media and is, in fact, normal.

One executive at a coal mining company, which sells coal into China, was somewhat dismissive.

"It's almost an annual event. It's par for the course," the mining executive told FreightWaves.

The executive argued that China is simply protecting its domestic producers. "We see that China has done this over the last three years or so. The motivation is domestic protection, not political. It's usually connected to protection of domestic suppliers – they seek to protect them because the quality of imported coal is quite high. It can happen quickly and without notice so we are watching for it," the executive said.

"It's almost an annual event.

It's par for the course"

- coal mining executive

A common complaint: too much work, too little time

However, a coal transport executive asserted that there was an entirely more mundane reason… the Chinese officials have too much work and not enough time to do it.

"It's not anything out of the ordinary," the executive said.

The transport executive explained that whether there is quick clearance of coal or not will depend on the situation at the port of discharge. There is an organization that checks the quality of the imported coal. That entity will be checking to see that the coal that is discharged is exactly what it has been declared to be in terms of volume and quality. Some coals have a higher sulfur, moisture or carbon content than others, which affects the price, usage and even transport safety of the coal. Sometimes, the transport executive explained, "dodgy" things can happen and so the coal has to be checked upon discharge.

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Delays, delays, delays

There can be delays at the port of discharge if the checking entity is, for any reason, unable to cope with the workload.

If, say, ten capesize vessels (very large dry bulk carrying ships than can haul upwards of 80,000 tons of product) arrive at the same time then there will be congestion at that terminal or port.

Alternatively, a port may have allocated, say seven stockpiles for iron ore and three to coal, but more coal arrives than forecast and port officials don't have the stockpile space for it. And, consequently, customs clearance simply takes longer to do.

"That's why bills of lading to China don't

specify a particular discharge port"

- coal transport executive

It happens in Australia too

"It's the same as the situation at DBCT [Dalrymple Bay Coal Terminal, Queensland]. There are huge queues of ships owing to the recent cyclone. We need time for the stockpiles to dry out. There are swells.

"It's not an ‘issue', it's a natural phenomenon.

"If they [Chinese customs officials] don't have the time, or their workload is too big, or the bloke is on holiday, then they can't inspect. It's not across all of China. It's port-specific and it depends on workforce and shipping schedules. It's down to congestion," the executive asserted.

"That's why bills of lading to China don't specify a particular discharge port. They specify ‘a main port in China' and then the receiver nominates a port at a later date to avoid congested ports and extra costs," the transport executive said.

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How to do a port bypass

Both the mining and transport executives confirmed that a given port could be bypassed in China for the purposes of coal delivery, although this would entail complexity, time and delay. The mining executive pointed out that coal could be on-sold to another country if necessary.

The transport executive explained that many of the coal-consuming institutions in China were originally set-up inland and so coal is railed or trucked to its ultimate destination after its wharf-side discharge. That means that coal still en-route by sea can be re-routed while in transit, avoiding a given port, and nonetheless end up at the correct destination.

How exactly this is done, and what the actual port of discharge will be, will depend on a lot of factors – a vessel's fully laden draught (the part of the ship that's under the water), the draught of the port, local rail and road connections, contractual arrangements, fees, the nearest alternative ports and the ultimate destination, among others.

Aussie coal exports by volume and value

By volume, Australian coal is a major seaborne commodity. The Australian Office of the Chief Economist estimates that 2017-2018 will see 179 million tons of metallurgical coal exported and 203 million tons of thermal coal exported. Coal (metallurgical and thermal combined) will likely be the second-most valuable commodity export from Australia in the 2017-2018 financial year. Metallurgical coal exports are forecast to have a value of about AU$37.79 billion (about U.S.$27.01 billion) and the value of thermal coal exports are forecast to stand at AU$22.58 billion (about $16.06 billion).

Exports to the Dalian port were seven million tons, which is only 7.8 per cent Australia's exports to China, and only 1.8 percent of Australia's total coal exports, according to the Australian trade minister's office.

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