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China coal ban could last well into 2022 say analysts

Glencore coal

An Asian superpower’s Australian coal import suspension will last for at least another year, a mining research group predicted.

Wood Mackenzie estimates the Chinese Communist Party (CCP) will keep banning Australian coal well into the next 12 months.

“It is hard to define the impacted timeframe of the ‘indefinite suspension’ at different negotiation stages [but] our current April base case assumes the impact on thermal coal will linger through 2022,” Asia Pacific coal market principal analyst Shirley Zhang said in a public statement.

“The ban is already in place and has affected trade flows and seaborne prices over the past six months.”

No more bans

Although coal remains affected, iron ore and other commodities are unlikely to be banned any time soon. This is because the CCP relies too “heavily” on Australian supply and a hasty decision would “impact the domestic economy”.

“The government is more likely to raise the administrative cost for importing commodities from Australia if they want to take action,” senior economist Yanting Zhou said.

The remarks came after the CCP’s National Development and Reform Commission (NDRC) suspended all strategic economic dialogue activities with Australia on May 6, following the Federal Government’s move to cancel China’s controversial One Belt, One Road Initiative deal with the Victorian Government.

China slams door

The CCP confirmed there is no longer a “window” for senior officials to communicate and find opportunities for cooperation across the resources, infrastructure, energy, industrial and financial sectors.

“Recently, some Australian Commonwealth Government officials launched a series of measures to disrupt the normal exchanges and cooperation between China and Australia out of ‘Cold War’ mindset and ideological discrimination,” an NDRC spokesperson said in a public statement.

“Based on the current attitude of the Australian Commonwealth Government toward China-Australia cooperation, the NDRC … decides to indefinitely suspend all activities under the framework of the China-Australia strategic economic dialogue.”

Industry looks elsewhere

Verisk Maplecroft suggested Australian mining companies would have to start finding new customers and diversifying away from China.

“Deteriorating bilateral relations will likely drive Beijing to diversify supply away from Australia, especially of resource commodities it sources primarily from the latter,” principal analyst Kaho Yu said in a public statement.

“The two countries are locked in a cycle of tit-for-tat policy action against each other. While Beijing will likely continue to impose administrative restrictions on imports from Australia, Canberra will also likely tighten restrictions on Chinese investment, especially in sensitive sectors.”

No relief in sight

Wood Mackenzie believes the only way the CCP might consider lifting the suspension is if the Australian Government backs down first.

“Given the strong position that the Chinese government is demonstrating and the Chinese economy’s manageable reliance on Australian supply, it is unlikely to back down before the Australian government does,” Zhou said.

“There are no specific projects related to the natural resource sector under this framework.”

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