Huawei off to the coalmines in Australia

Is China’s boycott of Australian coal environmental or Huawei linked ?

Publié en français dans Les Echos

After the brief ban of rare earths exports to Japan in 2010 due to a trawler problem; after the imposition of transit duties at the end of 2016 on Mongolian mineral exports to China in response to a Dalai Lama visit to Ulan-Bator; after Chinese opposition in 2017 against Korean companies in the so called “war of batteries” in retaliation to the installation of a US missile base in South Korea, this week Australian coal was banned from import at the Chinese port of Dalian. Why?

About 40% of coal imported into China is Indonesian, while Australia is the second largest at 30%, followed by Mongolia (13%) and Russia (10%). These imports are thermal coal (42 %), steel coal (23 %) and lignite (36 %). Dalian, a port on the Liaodong Peninsula, receives 5% of China’s coal imports.

Australia, on the other hand, exports a quarter of its coal to China. But arrivals in Dalian are about 2.5% of total Australian coal exports.

However, this week Dalian authorities decreed that coal imports would not exceed 85% of the terminal’s capacity, but above all they launched a total embargo on Australian anthracite, whereas it monopolized three-quarters of the terminal in 2018.

In other words, China has closed the Dalian gateway to Canberra coal. But as far as figures are concerned it is still a small event for planet coal.

Why this boycott?

On the Chinese side, by reducing dependence on Australian coal the boycott is justified by the search for an environmental improvement. Nevertheless, the boycott will probably benefit to other exporting countries exploiting the vacuum created in Dalian, Indonesia in particular. It will also benefit other Chinese ports that still accept Canberra’s coal. Nor should we forget the impact on Chinese mining companies based in Australia. Yancoal Australia, a 65 % subsidiary of the Chinese miner Yanzhou since 2004, exports 25% of its coal production from New South Wales to China; the rest goes to Korea, Japan, India and Taiwan. Let’s bet Yancoal will be able to positively navigate this minefield.

A different perspective is expressed on the Australian side. It links the Chinese blockade to the Australian ban on Huawei equipment but this remains sotto voce and in rebus mode. Indeed, Australia would have a lot to lose if an anti-Australian coal blockade spread to all other Chinese ports, or even to other materials, notably iron ore.

Second look, since other countries are defiant towards Huawei, should we have to expect a major Chinese move against other products imported into China? What about Canadian and U.S. LNG? In such a case, although very hypothetical, we could talk about a conflict in the world of commodities, à la mode of Thucydides. But since China has never considered such a war in metals, agriculture or energy recently, why would it do so now ?

Nevertheless, if the Chinese blockade has nothing to do with Huawei, it should be extended to other coal imports as well as coal domestic production. Thus, Beijing would leave the half-measure in front of climate challenges.


Linkedin: Didier Julienne

Twitter:  @didierjulienne