Xi Jinping blinks: China could ease import restrictions on Australian coal
admin October 8, 2021 0 COMMENTSOnePacificNews, October 8, 2021, Friday. Twitter: @WengCouver
It’s been over a year since China started flexing its economic muscles to try bend Australia’s political will over their increasingly bitter bilateral disputes.
This was in response to Australia accusing its biggest trading partner of the following:
- Interference with its domestic politics;
- Not being truthful about the outbreak of the COVID-19 pandemic;
- Unfairly arresting Australian nationals in China;
- Committing human rights abuses against the Uyghurs in Xinjiang; and
- Threatening Taiwan and taking away Hong Kong’s democracy.
China’s government under President Xi Jinping retaliated by restricting the import of billions of dollars worth of Australian merchandise including coal, beef, grains, crops, lobsters, and wine.
After over a year of unofficial trade sanctions and boycott, China is discovering the limits of its power. While Australia has suffered heavy financial losses, they have not been unbearable. Instead, the “sanctions” have toughened Australian resolve and encouraged other countries to be less fearful of China’s threats to use economic retaliation to settle political disagreements.
In recent weeks, the tide has further turned against China with the onset of an unexpected energy crisis. The world prices of oil, gas, and coal, which collectively meet over 85% of the country’s energy demand, have surged to multi-year highs. Underlining the severity of China’s energy crisis, the price of liquefied natural gas (LNG) into Asia hit a record US$56 per million BTU this week, up 10 times from US$5.6 just eight months ago.
Across China, local authorities have ordered emergency power cuts across, dramatically cutting into factory activities and fuel demand for heating just as temperatures are starting to fall.
Coal from Australia
With coal demand surging also in Europe facing record electricity prices, China is under pressure to call off its unofficial trade war against Australia, a major fossil fuels supplier.
Consultant Wood Mackenzie believes China could allow customs clearance of stranded Australian thermal coal to immediately increase feedstock supply to its power-hungry provinces.
Here is Wood Mackenzie’s comment on China’s coal and power situation:
The power crunch in China over the last few weeks has clearly shown the country’s heavy reliance on coal for power generation.
Large-scale power restrictions were observed in the last two weeks of September in China on a scale not seen in the last two decades. At least 18 provinces have implemented demand shedding including industrial power houses Guangdong, Zhejiang and Jiangsu, as well as coal-rich inland regions such as Inner Mongolia.
Three key causes of the power crunch include booming electricity demand, strict implementation of energy and environmental targets, and most importantly, record high coal prices.
Wood Mackenzie research director Alex Whitworth said: “China’s higher power demand growth has pushed up coal prices. We estimate that over 50% of this year’s power demand growth will have to come from coal-fired power.”
Coal provides about two-thirds of China’s power and unsurprisingly, the National Development and Reform Commission (NDRC) reported that thermal power generation (mostly coal) grew by 12.6% in the first eight months of 2021.
China’s seaborne thermal coal price marker, the Qinhuangdao 5,500, has increased to RMB1,500/tonne (US$230/tonne) even as the peak summer season ended in September, more than twice the price in the same period last year. As a result, the coal price delivered to power stations is now around US$11/MMBtu (million British thermal units), a price level more commonly associated with expensive LNG imports.
As coal prices continue to escalate, Chinese power generation companies are left in a limbo. The country’s hybrid system of selling coal power to the grid around a regulated band means costs cannot be passed through to consumers. Although most coal generators are not fully exposed to spot thermal coal prices, over 90% of power plants have been loss-making so far this year.
As the country grapples with one of the most gripping power crises in the last two decades, there are signs that China could be softening its stance on stranded Australian coal.
Chinese importers have told Wood Mackenzie that they believe they will now be allowed to clear Australian coal through customs. Most of this coal has already been unloaded into stockpiles at ports but has previously not been allowed to clear customs. Customs authorities have yet to officially confirm this with owners of the cargoes.
Principal analyst Rory Simington said: “We estimate around five million tonnes coking and three million tonnes of Australian thermal coal stockpiled in Chinese ports that could be cleared into China’s domestic market.
“The quantity of stockpiled thermal coal is not sufficient to have a significant impact on prices in China’s domestic market. Coking coal’s quantity is more significant to China’s domestic market and could lead to easing in domestic price.”
Managing consultant Yu Zhai added that the new supply easing measures released in China yesterday could change things. Inner Mongolia autonomous region and Yulin city of Shaanxi province have announced that they will be increasing supply to meet demand.
Mr. Zhai said: “The market tightness will moderate to some extent accordingly. The coal inventory of key generation companies (gencos) dropped to 49 million tonnes by the end of August which is roughly 30 million tonnes lower than last year.
“As gencos suspended traditional restocking in September this year, we expect the gap of inventory in September or early October to widen to 40 million tonnes or even more year-on-year. The increasing supply will help gencos to increase their inventory gradually. We do not expect the Qinghuangdao (QHD) price to slump as there is no significant change on fundamentals.”
China is performing a balancing act between strong industrial growth and high energy costs and is doing its best to alleviate the latter. The intense power cuts are unlikely to continue and a move to a more orderly system of chronic demand shedding focused on specific sectors is evolving. The overall target will be to maintain high-value economic growth sectors including high-tech manufacturing and services, while cutting coal burn in energy-intensive sectors.
Mr. Whitworth said: “Chronic but managed demand shedding could impact about 5% of power demand in the last quarter of the year, or about 1.2% of annual demand. So rather than hitting 11% or higher power demand growth in 2021, we expect annual electricity demand to be kept at around 10% – most of which has already happened.
“The government is already moving to increase domestic coal supply and is likely to make some modest upwards adjustments to regulated on-grid coal tariffs and end-user tariffs later in the year to ease pressure. But utilities will still lose a significant amount of cash and the government will still be in effect subsidising power costs for consumers including industry.”
RELATED ARTICLES
Archives
- September 2022
- March 2022
- December 2021
- November 2021
- October 2021
- September 2021
- August 2021
- June 2021
- May 2021
- April 2021
- March 2021
- September 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
- January 2020
- September 2019
- August 2019
- July 2019
- May 2019
- March 2019
- February 2019
- January 2019
- December 2018
- November 2018
- October 2018
- September 2018
- August 2018
- July 2018
- June 2018
- February 2018
- November 2017
- August 2017
- May 2017
- February 2017
- December 2016
- November 2016
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- October 2015
- July 2015
- June 2015