A multinational coal producer predicted an Asian superpower’s Australian coal import suspension could become long-term.
Glencore does not expect the Chinese Communist Party (CCP) to stop banning Australian coal anytime soon.
The company’s outgoing chief executive echoed recent concerns from his BHP counterpart that Australian coal producers could stay locked out of the Chinese market for several months, if not years.
“I agree with Mike Henry that I do not see the Chinese relenting at the moment,” Glencore CEO Ivan Glasenberg said according to News Limited.
“In the context of the battle the [rising] amount they are paying for coking coal is so small in the Chinese economy, I am not sure that would affect it.”
371 per cent drop
Glencore revealed the CCP’s decision to delay Australian coal imports delivered a major blow to company earnings in calendar 2020. The proponent reported a US$1.9 billion (A$2.4B) net loss, representing a 371 per cent decline on the previous year.
“Seaborne coal trade was dramatically impacted during 2020 by the economic fallout from COVID-19 and the necessary reshuffling of trade flows as China restricted Australian coal purchases,” the company said in its preliminary results for 2020.
“The rapid drop in global energy demand created oversupply, which drove prices to unsustainable lows, comparable with the 2016 downturn … [and,] at year end, coking coal markets remained temporarily subdued due to the overhang of market players needing to resell excess inventory of Australian coal destined for China.”
100M tonne oversupply
International seaborne thermal coal demand for the previous year also dwindled by more than 100 million tonnes, representing a 10 per cent decrease. Sixty per cent of the decline was blamed on China, South Korea and India. The Atlantic market was responsible for the remainder due to falling demand, record-low liquefied natural gas import prices, higher carbon prices, and a strong renewable energy market.
Glasenberg believes it will cost mining companies more to divert existing trade routes away from China due to the ban, a regulatory move he described as unnecessary.
“The trade route for coking coal from Australia should go to China because that is the lowest freight rate … [but,] unfortunately, it is not going there because of the spat between Australia and China, so China has to go to the United States to buy its coking coal,” he said.
“The freight rate may be higher, so the consumer in the end bears the burden and hopefully the producer does not because it is just a matter of moving the deck chairs. Long term, does it help anyone? I do not think so.”
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Glasenberg’s expects to finish up at Glencore sometime during the first half of 2021. He will not receive any termination pay, and have to settle for his pro-rata base salary of US$1.4 million (A$1.9M) plus superannuation payments of up to US$52,000 (A$69,968).