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October 26, 2021

China is facing its worst power crisis in years due to a coal shortage. While Australia has the coal Beijing needs, the world’s second-largest economy is unlikely to reverse an unofficial ban on Australian coal imports anytime soon. That’s despite recent media reports suggesting that China is releasing small quantities of Australian coal that was stuck at Chinese ports for months due to the ban.

“Reports that small quantities of Australian coal were allowed to clear customs in China have increased speculation that Chinese authorities will look to relax the import ban on Australian coal,” Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank of Australia commented. “We don’t think Chinese authorities will relax China’s ban on Australian coal this winter,” he said.

Late last year, China stopped buying Australian coal. That happened as trade tensions between the two countries soared after Canberra backed a call for an international inquiry into Beijing’s handling of the Covid-19 outbreak. Before that, Australia was a major coal supplier to China — in 2019, some 38% of Chinese thermal coal imports came from Australia.



Energy crunch in China

China relies heavily on coal for power generation. Since mid-August, at least 20 provinces across the country have reported power cuts of varying extents. That was due to several factors including a shortage of coal supplies, tougher government mandates to cut emissions, and higher manufacturing demand as the global economy bounces back from pandemic lows. Officials have reportedly urged top state-owned energy companies to secure supplies for the upcoming winter at all costs.

But analysts say Beijing will not likely lift the import restrictions on Australia anytime soon. Instead, they predict that China will look to boost its own coal production, tap on other international suppliers and push its industries to curb output and emissions. There are no signs that China will allow companies to purchase new shipments of Australian coal, according to Rory Simington, principal analyst at Wood Mackenzie. 

 

“The political situation hasn’t improved at all,” “This is largely a political issue and not an economic one, and, yeah, no signs of any easing on the ban on new cargoes.”Beijing may also look to other countries for more coal. “China is likely to push Indonesian suppliers for more coal but they are nearly at peak capacity,” Abhinav Gupta, a dry cargo research analyst at shipbroking firm Braemar ACM, commented earlier this month.

“China has also been trying to get more Mongolian and Russian coal to cater to its demand; however, there is some competitive pressure for Russian coal from the European buyers. We have also seen China buying more coal from suppliers in the Atlantic, such as US and Colombia,” Gupta said by email.















SOURCE: CNBC
IMAGE SOURCE: PIXABAY