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China and Australia appear to have finally moved away from each other. The relationship turned frosty after China imposed an “unofficial ban” on Australian coal imports back in November 2019. At the time, many speculated that China would suffer more. But steel prices have held steadier as well.
The dispute started sometime in 2019 after China delayed Australian coal shipments. Other factors including Covid made things worse. China hardened its stance after the Australian government called for an independent inquiry into the origins of COVID-19. In what is being interpreted as “retaliation”, China blocked imports of Australian products like copper and coal. Last year, China imported 54.7 million tons of coking coal, down by 24.6% from 2020.
Australia found new outlets for coking coal
Meanwhile, new reports from Australia, including from one of its largest coal-making provinces, Queensland, indicates Australia has found other export markets. China, too, has stepped up domestic production of coal to try and meet the shortfall. However, analysts say those efforts have not been particularly successful. China lifted restrictions on coal mining enforced by the country’s national production plan. This helped to shore up the deficit in coal demand and supply. The country’s promised increase in reliance on alternate sources of fuel and increased energy efficiency has also helped fill the gap.
Indonesia to the rescue
The lifting of export controls of coal from Indonesia may come as good news for China. China remains one of the largest importers of Indonesian coal, importing as much as 123 million tons of it last year.
Before the unofficial ban on Aussie exports had kicked in, Australian coal had accounted for almost half of China’s coal imports. The Australian import ban affected many sectors in China where coal played a prominent role, including in steel making.
China crude steel production falls
During the second half of 2021, much of China experienced power blackouts as it struggled with supplies. Also, for the first time in six years, the country’s crude steel production fell. China said production drops came as a result of reducing the sector’s carbon emissions. In addition, numbers dropped due to high international coal prices.
Meanwhile, as China explored other avenues to fill the supply gap, Australia has managed quite well.
According to news reports, Queensland’s overall exports rebounded by 26.3%, or $16.5 billion, to $79.2 billion in 2021, according to a report released a few days ago.
Coal exports from Queensland increased by about 36% in 2021. India, South Korea, and Japan have picked up the windfall of Australian coal following China’s ban. Many Australian coal companies said they would not go back to China. And China does not need to go back to Australia. When Indonesia implemented an export ban on coal and subsequently partially lifted the ban, that provided more options for China.
Unlike the 2021 China steel price rollercoaster ride, experts have expressed confidence in more stability. Markets may not see much volatility in steel prices as China’s crude steel output could increase in the first half of 2022 and then decline during the second half. China’s 2022 steel production levels should remain similar to 2021.
Higher demand and lower inventory levels market suggest higher prices for the medium-term according to analysts. Conversely, China filled its energy supply gap in 2021 through increased demand for imports of thermal and met coal.
By AG Metal Miner
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