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Column: China's easing of Australian coal ban is symbolic, not market-shifting

The edge of Glencore's Mount Owen coal mine and adjacent rehabilitated land are pictured in Ravensworth, Australia, June 21, 2022. Picture taken June 21, 2022. Picture taken with a drone. REUTERS/Loren Elliott/File Photo

LAUNCESTON, Australia, Jan 9 (Reuters) - China's decision to allow imports of Australian coal after more than two years of an unofficial ban is one of those moves where the symbolic importance outweighs the practical impact.

The partial easing of the ban will see three utilities and a major steelmaker given permission to resume imports from Australia, which used to be the second-biggest supplier to China prior to the curbs being imposed in mid-2020.

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While there is likely to be some interest among Chinese buyers for cargoes from Australia, the likelihood of a return to prior levels of trade is limited as regional and global market dynamics have shifted substantially.

There are several reasons why Australian coal won't once again become a major factor in China, the world's largest importer of the fuel used mainly for power generation or to make steel.

The first, and most important, is that Australian coal will struggle to compete on price in China, especially thermal grades used to make electricity.

Prior to the ban in July 2020, China was importing in the region of 3.5 to 4.3 million tonnes of thermal coal from Australia, with the 2020 peak coming in at 4.26 million in April of that year, according to data compiled by commodity analysts Kpler.

For that month, it gave Australia a market share of 21% of China's total thermal coal imports, well behind the leader Indonesia, which had a share of 69%.

While the numbers did move around somewhat on a monthly basis, the April 2020 data is representative of the broader trend in China's imports of thermal coal, namely Indonesia dominated and Australia was a distant second.

Once the informal ban came into effect, Australia's share of China's imports dropped to zero by early 2021.

It's also the case that China's overall imports slumped in the months after the ban was imposed, but they started to recover from November 2020 onwards and by June 2021 thermal coal arrivals were exceeding 2020 levels.

What effectively happened is that Russian cargoes replaced Australian, with seaborne thermal coal imports from China's northern neighbour reaching 3.37 million tonnes by June 2021, having been just 1.07 million in April 2020, the peak month for imports from Australia that year.

China's imports of Russian thermal coal have remained solid, with some seasonal variations, since then and were 2.96 million tonnes in December, according to Kpler.

The question is whether Australian coal miners can compete on price with Russian thermal supplies, and the answer is probably not.

Chinese utilities previously imported lower grade Australian thermal coal, so the closest match is the 5,500 kilocalories per kg (kcal/kg) assessment by commodity price reporting agency Argus.