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China boosts coal production, eases Australia ban to boost energy security

Reuters · 01/06/2023 05:32
China boosts coal production, eases Australia ban to boost energy security

By Muyu Xu


- The increasing to secure energy supplies after easing COVID-19 restrictions has pushed China to gradually resume Australian coal imports and urge domestic miners to boost their already record output.

The lifting of the unofficial ban on Australian coal imports, which were halted in 2020 in a fit of Chinese pique over questions on COVID's origins, is the clearest sign yet of the renewed ties between them. The resumption is also a reminder of their economic interdependence as Australia's raw materials play a crucial role in fuelling the export-oriented economy of China, the world's biggest coal consumer and producer.

The decision came after the Chinese and Australian leaders met for the first time in six years at the G-20 summit in November, after a change in the Australian ruling party following elections in May. Australian Foreign Minister Penny Wong followed that meeting with a visit with her counterpart in Beijing last month.


Beijing's two-pronged approach to coal security comes as prices for power generation fuels and coking coal surged after Western sanctions disrupted Russian supplies after its invasion of Ukraine.

Chinese utilities and steelmakers will have access to better quality Australian coal, while Australia, which used to be the second-largest coal supplier to China, could recover some of its market share lost to suppliers including Russia and Mongolia.


"This development may have stemmed from the thawing of relations between China and Australia given the government in Canberra," said Pat Markey, managing director at consultancy Sierra Vista Resources.


"Many miners would welcome the opportunity to renew their commercial relationships in China for both metallurgical coal and thermal coal."

China's state planner this week allowed three central government-backed utilities and its top steelmaker to resume coal imports from Australia.

Among them, China Energy Investment Corp has placed an order to import Australian coal which could load later this month.

Market participants expect more firms to be granted permission to buy Australian coal in the coming months.

Rising prices amid the Russian sanctions and an expected jump in Chinese coal demand - as much 2% more in 2023 than last year, according to Wood Mackenzie analysts - after the end of its COVID restrictions has renewed the energy security concerns.

Those easing restriction have added to the supply concerns following a spike of COVID cases that have affected Chinese production.

Mine workers sickened by COVID this winter at key coal hubs in Shanxi and Inner Mongolia has cut output, traders said.

Beijing wants to avoid a repeat of blackouts from coal shortage in late 2021. China, the world's biggest coal producer and consumer, relies on coal to generate 60% of its electricity.

The country is expected to produce a record 4.45 billion tonnes of coal in 2022, the National Energy Administration said during a meeting Dec. 30, according to state television.


HIGHER QUALITY

China purchased more than 30 million tonnes of coking coal and 50 million tonnes of thermal coal from Australia before buying stopped.

Without Australian supplies, Chinese buyers turned to Indonesia for thermal coal, and Mongolia and Russia for coking coal, but struggled to obtain the high quality coal for power generation and steel production that Australia used to provide.

"The resumption of trade is doubt a good for China to solve the problem of high quality coal shortage," said analysts from COFCO Futures in a .


(Reporting by Muyu Xu; Editing by Florence Tan and Christian Schmollinger)

((muyu.xu@thomsonreuters.com; +65 9829 1075;))