Don’t stress over China’s ban on Australian coal

Stop worrying about China’s ban on Australian coal. A Reuters report that the northern port of Dalian had banned imports from China’s biggest supplier of the black stuff sent ripples through global markets, driving the Australian dollar down as much as 1.3 percent after a whipsawing day of trade. London-listed shares in Glencore Plc, Anglo American Plc and BHP Group fell 3.2 percent, 1.5 percent and 2 percent respectively.
The obvious fear is that Canberra’s increasingly rocky relationship with Beijing could be prompting more widespread import curbs, not unlike China’s brake on US agricultural exports since the trade war began. For Australia, which counts China as its biggest trading partner, that could be devastating. It’s an alarming narrative, but doesn’t quite hang together.
First, consider the source of the reports. Dalian is a major center for commodities trading, yet as a coal import harbour it’s not particularly significant. On its own, it doesn’t even make it into China’s top 10, according to GlobalPorts data.
Then there’s the fact that China can’t easily hurt Australian coal exporters without inflicting pain at home. Dalian disproportionately handles coking coal, an essential raw material for steelmaking, one of the biggest sectors in the surrounding Liaoning province. Steel mills are notoriously fussy about the type of coke they use, and China’s domestic industry is only just recovering from a spike in prices toward the end of last year. Along with weaker prices for steel, that rise took many factories to the edge of profitability.
In truth, China has been trying to ease its coal imports for some time now, in an attempt to source less from overseas as it restructures its domestic mining industry. Unloadings in December fell by more than half from the same month of 2017 to just 10.23 million metric tons. That’s the smallest monthly figure in nearly eight years and the biggest fall from a year earlier in data going back to 2006. Even if you smooth out monthly volatility with a moving three-month total, the country looks to have been retrenching coal imports at a pace consistent with the industrial downturn of 2015.
That fits more consistently with the picture painted by earlier reports that China is delaying customs clearance of Australian coal imports, rather than banning it outright.
If China really wanted to hurt Australia, it would crack down on visas for local students wanting to study there – a business that’s worth roughly the same amount of export dollars as coal. Mainland students could just as easily find substitute university courses in Europe, North America and elsewhere. It’s only natural that Beijing wants to keep its partners worried about poking the bear – but in this case, the sleeping animal is more of a panda than a grizzly.
—Bloomberg

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies