Australian coal supplies to China unlikely to reach pre-ban levels in 2023

Australian coal supplies to China in 2023 will likely remain lower than the levels recorded in period before bilateral trade between the two nations were suspended, an analysis of coal trade data and evaluation of China's appetite for the fuel by analysts and market sources showed.

After a two-year long unofficial ban on coal imports from Australia, China finally lifted the restriction at the beginning of the ongoing year. As per data from S&P Global Commodities at Sea (CAS), China procured 30.4 million mt of total coal in January-July period of the current year from Australia, down nearly 50% compared with the same period in 2020, just before the ban was imposed.

Of the 30.4 million mt, nearly 13 million mt of Australian coal was procured by China in June-July. However, market participants feel that amid the downturn in the Chinese economy overall coal imports are seen to drop significantly in the second half of 2023.

Pat see Khoo, senior analyst at S&P Global Commodity Insights, expects China to import 305 million mt thermal coal in 2023, of which the country has already imported 197.5 million mt between January-July. This denotes that most of China's coal imports this year have taken place in the first half and procurements will significantly drop in the remaining period of 2023, which could result into a drop in the Australian supply to China.

The analyst further said that the initial few months after the ban was lifted China's Australian coal imports did not pick up drastically because it had only relaxed the restriction for three major power plants. However, only 12%-15% of China's thermal coal imports is expected to arrive from Australia, keeping Sino-Australian bilateral coal trade volumes lower than historical levels.

Trade flow transitions

After it completely stopped procuring Australian coal, China started importing more from Russia, taking 45.60 million mt in 2021 as compared with 34.30 million mt in the preceding year, according to data from CAS. This coincided with the drop in Russian coal prices after the Ukraine-Russia conflict, as a result of which Russian cargoes became more attractive to China-based buyers. Russia's export to China further increased up to 64.60 million mt in 2022.

However, with Australian coal prices coming down since the beginning of 2023 when China lifted the unofficial ban, coal trades started increasing gradually between the two nations in this period. According to Platts data from S&P Global Commodity Insights, the average price of Australian low-ash 5,500 kcal/kg NAR FOB Newcastle coal fell 39.87% on the year to $113.71/mt in the first seven months of 2023.

Although this shift in price dynamics theoretically supports the rise of supplies of Australian coal to China in the coming months, larger macroeconomic shifts are proving to become an impediment for this to become true, conversations with market participants show.

In anticipation of higher economic activities in the post COVID phase, China's coal imports were significantly higher in the first half of 2023. However, the economy has not been as robust as expected with noticeable downturn in the country's manufacturing and real estate sectors. This, along with the continued growth in domestic coal output, suggest that China's imports would likely be slower in the second half of the 2023. China's coal imports have been coming down on a month-on-month basis since June, CAS data shows.

Also, some market sources believe that the Australian coal imports have limited opportunities to reach the prior levels in China, primarily due to a paradigm shift in the global market dynamics. As per a trader based in Singapore, after the Chinese government barred imports from the country, Australia found other markets to sell their produce including India and Japan. Australian miners have now become more cautious to tap long-term relationship with China as they have been unable to anchor their trust with the Chinese government whose unprecedented behavior significantly caused damage to the country's trade relationship, the trader added.