Australian coal price hits new high amid squeeze of iron ore in China
China’s harsh crackdown has brought Australia’s $ 149 billion iron ore industry to its knees, but hope has taken on a new form.
Although China has brought a $ 149 billion industry in Australia to its knees, hope has come in a new form: coal.
In May, China promised “economic pain” to Australia by cutting its purchases of iron ore, predicting it would wipe out $ 32 billion from our economy.
And it seems to be working. Earlier this week, the price of iron ore fell 9% in one day, the second steepest drop on record.
However, a new export, coal, took the place of iron ore.
As markets closed on Monday, metallurgical or coking coal was selling for $ 274 per tonne, very close to the all-time high of $ 299.33 per tonne in November 2016.
The cost of $ 274 was below its close last Friday, which was the highest price for coal since April 2017.
Over the past year, coal has grown 170 percent.
That’s despite China’s unofficial coal ban since October last year, with power companies warning of the Australian product.
In fact, Peter Cai, director of the Australia-China Relations Project at the Lowy Institute, believes China accidentally shoots itself in the foot and bears the brunt of those costs.
Mr Cai said it was “entirely possible” for China to pay premiums for coal because it had to buy from a middleman rather than directly through Australia, meaning its price was higher.
It would also mean that demand from China is still there, supporting prices.
“It is entirely possible that some shipments were sold via a third country, to circumvent unofficial bans,” he told news.com.au.
Reports claim that China is paying $ 595 per tonne for coal, which is more than double what Australian coal producers sell it for at $ 274 per tonne.
The rise in coal has also been aided by China with another unintended consequence of its ban – pushing other buyers into Australia’s path.
As coal collapsed last year due to the sudden drop in demand, bargain prices were quickly swindled by other countries.
“While hard coking coal exports to China have declined since mid-2020, increased exports to India, Japan and South Korea have offset some of the decline,” the ‘ABS.
Mr. Cai added, “Think of it like a bathtub. Everyone pours water into the tub. If China doesn’t use it, it ends up balancing itself.
“It’s not a huge drop. In a way, we were able to find other buyers.
Immediately after the coal ban, China experienced another flashback: by cutting off the import of much-needed energy, millions of its citizens were plunged into darkness following power shortages.
Australia’s Department of Industry, Science, Energy and Resources said in June – ahead of last week’s price spike – that the coal industry was “recovering moderately”.
The price of Australian premium hard coking coal is expected to rise from an average of $ 193 per tonne in 2021 to around $ 212 by 2023, according to the report.
Coal exports are expected to fall from a low of 171 million tonnes in 2020-2021 to reach 186 million tonnes by 2022-2023.
“Supply chains disrupted by China’s informal import restrictions have largely reorganized, but with some loss of income,” the report adds.
Australia’s metallurgical coal is expected to bring the economy $ 22 billion this year, and an even larger $ 32 billion by fiscal year 2022-23.