The latest development on the Chinese coal front is a potential easing of the unofficial ban imposed on Aussie coal. China is reportedly in discussions to allow 4 major coal importers to resume buying Australian coal. The ban was implemented in late 2022 due to rapidly deteriorating relations between the two countries. It mainly affected thermal coal shipments.

China used to account for 25% of Aussie coal exports. Australian producers have successfully redirected volumes to Japan, S. Korea, India, and Europe (following the sanctions on Russian coal).

On the other hand, Australia supplied roughly 1/3 of China’s seaborne coal imports. Nowadays, China relies more heavily on Indonesia and Russia to meet its coal requirements, while domestic output and Mongolian imports have also surged to record highs.

Similar discussions were held in July 2022 when Beijing was eager to avoid 2021 power shortages as the European ban on Russian coal was about to kick in and competition for a finite amount of coal cargoes intensified.

We do not anticipate a tangible impact on the market in the short to medium term for 2 main reasons:

1.            There are limited coal volumes available in the spot market. Even an imminent or a complete lifting of the ban would lack the scope to meaningfully alter trade patterns.

2.            The move is thought to be the latest step in Beijing’s efforts to cool down domestic coal prices by rendering more overseas coal available to utilities and steel makers.