God forbid to mine in an era of change – Newspaper Kommersant No. 241 (7442) of 12/27/2022

Last week there was an event that could change the balance of the global coal market. Australian Foreign Minister Penny Wong paid an official visit to China for the first time since 2019, where she held talks with Chinese Foreign Minister Wang Yi. The parties discussed, among other things, the topic of lifting trade barriers.

Relations between the countries deteriorated in 2018 when Australia stopped Chinese company Huawei from developing 5G networks in the country due to security concerns. Adding fuel to the fire was the desire of the Australian authorities to investigate the initial outbreak of COVID-19 in China in order to find those responsible for the spread of the infection. In response, China introduced an unofficial ban on the import of Australian coal and some other goods. Meanwhile, as of 2019, China was the world’s largest coal buyer with 197 million tonnes of imports, of which Australia accounted for 40%. Australia’s share in imports of coking coal was 40%, thermal coal – 60%. After the imposition of an unofficial embargo, Australian coal supplies were replaced by Russia, the United States, Canada, Indonesia and Colombia, as well as the growth of China’s domestic production. In 2022, after Europe refused to buy its coal, Russia increased exports to China by 67%, to $10.5 billion, according to Chinese customs data for January-November.

The resumption of coal trade between Australia and China is unlikely to please Russian coal miners. For them, this means increased competition in the world’s largest coal market, with Australia having a natural advantage due to its geographic proximity. Since Russian coal companies do not have many options where they can sell their goods due to sanctions, increased competition is likely to increase discounts on Russian coal.

However, according to the Indian consulting agency Coalmint, a return of China and Australia to 2019 trade volumes is unlikely. The Russian-Ukrainian conflict has already changed the global flow of the coal trade, forcing Russia to ship it to Asia, including China, at low prices. At the same time, Australian coal partially replaces Russian coal in the European market, and is also supplied to traditional regions such as Japan and South Korea. In fact, now importers are competing for Australian supplies, and prices for local thermal coal are now 24% higher than in January.

But the question is whether Chinese importers will be ready to pay for expensive Australian coal when they have an obvious alternative in the form of Russian coal of similar quality, with which, moreover, there are no political problems. It is very likely that geopolitics has already had an effect on commodity flows that cannot be easily reversed.