Speculation is growing that Mainland China will soon ban Australian coal, after several customers claimed the communist regime warned them not to place more orders.
A state-controlled utility in eastern China cancelled about 10 cargoes of Australian coking and thermal coal that were due for delivery in November and December because the ruling Chinese Communist Party (CCP) told staff to cancel the order. The cancellation was unusual since the utility had long-term contracts with the Australian mineral producer according to Argus Media.
No deal directive
Other utilities and industrial customers similarly confirmed with the publication that CCP representatives contacted them between October 1 and 8, and told them to immediately stop importing Australian coal. QMEB understands new orders will be made for coal sourced from Russia and Indonesia instead due to souring Australia-China relations.
It is unclear whether any previous Australian coal orders will be permitted through China Customs as a number of cargoes are experiencing either delays or defaults. Only a few have been permitted to unload their cargo at certain Chinese ports.
Quiet Christmas expected
Glencore Australia has already reduced output across a number of Queensland and New South Wales mines in recent weeks, and there is potential to suspend mining for an extended period in the Christmas and New Year break. This is understood to be in response to China’s stricter import rules and an international oversupply of thermal coal.
Although China’s Ministry of Foreign Affairs claimed it was unaware of any coal import freeze, Australian Trade Minister Simon Birmingham believes the shipment delays do warrant further investigation.
“I have seen the reports and we have certainly been in touch with the Australian industry,” he said according to the Australian Associated Press (AAP).
“We have also been working to seek a response from Chinese authorities in relation to the accusations that have been made publicly.”
China slams the door
However, the minister himself has been unable to reach Chinese Commerce Minister Zhong Shan for several months due to ongoing diplomatic tensions over the CCP’s earlier ban on meat imports from four Australian abattoirs and a new 80 per cent tariff on Australian barley.
“There have been patterns of things that look like there are some formal quota systems operating but we take the reports seriously enough to try and seek some assurances from Chinese authorities,” the minister said according to AAP.
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Aussie coal market is a highly organised and regulated market.Aussie coal is to be bought by PRC,only for very high quality Coal in terms of UHV/Kcal.A bulk of the CIFFO rates of Aussie coal for PRC,is sea freight,in Break Bulk Ships.Even with deep draft ports,and even if Chinese ships are used on Time Charters – sea freight,is s a waste.
Therefore Aussie high grade coal,is to be used for high value added super critical applications, in PRC. Every ton of High Grade coal,is also a Call Option,to buy lower priced coal,and lower graded coal,for blending options,to reduce cost at point of usage.dindooohindoo
However,this is the time for the PRC to make acquisitions (in Africa and Borneo etc.) and long term contracts with Nil Call Option premiums.At this point,committed quantity contracts,will provide solvency and bank loans,for coal mines. Hence,there will be Nil Option premiums loaded into the coal pricing contracts for medium term purchases.
When coal prices boom,the PRC can mine the highest cost first,as a stripping strategy – with the strategic objective of bargaining with large coal suppliers,for residual coal supplies.This option is NOT there for the Koreans and Japanese.Of Course, the Koreans have their own bag of tricks.
Hence,the Aussies and Indonesians can price gouge the Koreans and Japanese (as they have no strategic mining reserves),and the PRC can avail of some of this price gouging – when it does its acquisition of coal,from the Aussies.Aussies price gouging on the Koreans,will work only if PRC mines acquired in Africa,do not flood Nippon,and so,the Aussies have to pay a toll to PRC,for the price gouged by the Aussies,from the Koreans and Japanese
After stripping the high cost coal – the Chinese coal suppliers can easily raise,VC or Bank capital.
When coal prices and freights are low – as it is,at this instant,it is better to do spot pricing – as the suppliers have no bargaining power.There is only a supply chain risk,due to production and logistics bottlenecks.
In these times there is no need to invest in building up infrastructure,as lack of infra,can be used to hammer down coal prices at rake point or the mine pit head.Indonesia is an example,which gets the highest FOB rates for exports to PRC.Small unorganised mines in Borneo,Sumatra,Java sell coal at less than half the FOB rates,as they want cash down payment,at mine pit head.
Cash = CASH.
This state is due to the poor infra in several areas.Hence poor infra can be used to buy coal at less than 40% of the FOB rates.Thereafter the coal is to be carted to the port.Hence,the aim is to keep the unorganised coal miners,as vulnerable as possible.
Ideally,PRC can set up a bank which can discount export documents,at coal mine pit head with Multimodal Bill of Lading,with a chinese company managing and coordinating the rakes and trucks,to the port,and the loading of the ship,at outer anchorage,via barges.
The Chinese companies can pay the miners in Cash.Generally,in Africa and Indonesia,the Military provides the security to the logistics movement,for a fee,of course.
Aussie mining is highly organsied and regulated and so,is very expensive.
In any case,wherever PRC is using coal for thermal power,for base load requirements,it can offset the coal with Nuke Power or Gas/Naptha.Super critical applications of coal,for PRC,are for those industries,where Coal is a RAW MATERIAL,and the quality and coal specifications,are stringent.
Indonesia is a good option for PRC,as the nation is run by Chinese.80% of the companies on the JKSE are owned,managed or controlled by chinese.The Indonesians know that their nation cannot defend its islands from the PLN.It is a Muslim nation,which is NOT likely ever to be a part of the QUAD.Most importantly,the nation relies on resources exports – and has no viable domestic manufacturing industry. Indonesia does NOT need coal,as it has geo thermal power,but not the skills or the money,to tap it.
Hence,it has LOW political risk at present – but,in the future,if the economy fails (which it will),demagogues will take over and ruin the economy further (but will uplift the poor).
Indonesia has history with Australia,and Aussie int has many spies in Jakarta,and the Aussies also supported and still supports,the separatists who want to secede,from Indonesia.
Aussies have to export coal in the form of power or urea or urea in agriculture.Exporting coal,per se,is not a viable option.Reduction in Chinese demand will also impair pricing power with the Japanese/Koreans and other buyers.There is some serious problem in the Aussie coal policy.Adani an Indian company fronting for Narendra Modi,is mining coal from Aussie and exporting it to India for power generation.So all the poison is left in Aussie land,and the real value addition in the coal value chain,is done in India,and the profit on that value addition,is not taxed in Aussie.Besides,the coal is sold by Adani Australia to Adani India,at a discounted rate.
What does that prove ? It means that the Aussie state could not convince any Aussie to do some value addition in Aussie land on that coal,to earn ANY PROFIT on the value addition (as the profit from power generation in India,is not taxed in Aussie land) This is AFTER considering the SEA FREIGHT,on the coal exported by Adani to India.
If that is the state of affairs – then the Aussie coal sector is doomed.The beauty is that Adani is generating power in India – and India is POWER SURPLUS and the power tarriffs for coal is 5-7 cents (on the USD). With captive coal and iron,if Aussies CANNOT add value to the Aussie coal – then the Aussies are in serious trouble.Someone might ask,Y Aussies did not offer 6 cents/Kwh for power sold from the power plant of Adani in Aussie land.