Australian Coal Exports To China Increase As Trade Barriers Lift

Thursday, 6 July 2023 at 11:10 WIB

A new government report has found that Australian coal exports to China are increasing on the back of a reduction in trade impediments imposed by the Chinese Government in 2020.

The Department of Industry, Science and Resources’ latest “Resources and Energy” quarterly report found that thermal coal shipments to China are picking up strongly, although they are not yet back to levels reached in 2019–20.

The government noted that thermal coal exports to China grew from nil in December 2022 to 3.6 million tonnes (Mt) by March 2023, coming close to their pre-2020 level. Japan still remains Australia’s largest thermal coal customer, importing 5.9 Mt in March.

Data from the office of Australia’s chief economist also found that the increased Chinese activity has added significant competitive pressure to the market for Australian thermal and metallurgical coal, offsetting some of the impact on prices linked to softer world economic growth and lower energy demand.

Small growth for metallurgical coal

Global metallurgical coal supply is tipped to grow modestly over the next few years, though low investment in expansions and new mines could act as a constraint.

The latest quarterly report expects the metallurgical coal market to remain in a marginal shortfall over 2024 and 2025, keeping prices above their pre-2019 level.

New information also concluded that supply tightness has eased in thermal coal markets as disruptions linked to weather, the rerouting of trade following the Russian invasion of Ukraine, and the constraints of the COVID-19 pandemic dissipated.

Australia’s recent coal shipments have also begun to recover following a long period of weather-related disruptions and the government says the outlook is for greater production and export volumes.

Prices to fall by 2025

However, the government is forecasting that Australian premium hard coking coal price will fall to around $300 a tonne by 2025 from the current estimated average of around $400 a tonne.

The studies have suggested that improving supply conditions from across the globe will be the main driver for the price decline.

It is forecast that Australia will continue to be a significant player in future increases in coal supplies, with the nation’s exports forecast to jump from an estimated 157 million tonnes (Mt) in 2022–23 to 175 Mt in 2024–25, as several new mines open.

As prices decline, the value of Australia’s metallurgical coal exports are also forecast to fall from an estimated $60 billion in 2022–23 to $42 billion in 2024–25.

Thermal coal prices providing strong benefits as exports climb

New data show that Australian thermal coal exports rose from 13.5 Mt in February to 16.3 Mt in March on the back of improved weather conditions.

The result for March was significantly above the 2022 monthly average (of 14.9 Mt), and around 20% higher than in March 2022.

The office of the chief economist noted that despite a recent small decline due to improved global supply conditions, Australia’s thermal coal prices remain relatively high.

But that is set to change dramatically, with the Newcastle benchmark price tipped to fall to almost a third of current prices by 2025.

At the same time, the government is forecasting Australian thermal coal exports to jump from 178 Mt in 2022–23 to 202 Mt in 2024–25.

However, as prices decline, export values are forecast to fall from a peak above $60 billion in 2022–23 to around $30 billion by 2024–25.

New mine activity

Whitehaven’s Vickery project in northern New South Wales is on target to proceed soon with the company announcing a $150 million investment for the start-up of a small-scale version of the mine.

The notably smaller version is expected to only produce around 15% of original plans, however, the board is investigating the potential of investing a further $1 billion to lift production to the original level of around 8 Mt annually.

New Hope Group recently completed its stage 3 extension of the New Acland mine in Queensland.

Output at the mine is expected to climb steadily to 5 Mt annually from 2025, with production expected to recommence in the September quarter.

Source: https://smallcaps.com.au/australian-coal-exports-china-increase-trade-barriers-lift/