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China’s ban on Australian coal is blow for bulker owners

Australian coal, copper ore, barley, timber and sugar are expected to be barred from China from November 6 even if the goods have been paid for and have arrived at port. This would result in the loss of cargoes for bulker owners

Beijing is believed to have communicated the ban to all Chinese state-owned and private traders. A lack of clarity has led to confusion regarding the fate of the cargoes that have already reached Chinese ports and are awaiting discharge

CHINA is expected to block imports of Australian coal, copper ore, barley, timber and sugar even if the goods have been paid for and have arrived at ports.

Although no formal notifications have been issued by the Chinese authorities, an imminent ban has been reported on government-owned media, and in verbal instructions reportedly issued to Chinese state-owned and private traders.

Amid the confusion, Chinese end-users were said to be reselling the cargoes that had not yet arrived at ports and cutting further purchases in case cargoes are prevented from clearing customs.

Many of these shipments are being diverted to India or Vietnam, according to Braemar ACM, while dozen others continue to wait outside Chinese ports.

They include 24 capesize, post-panamax and panamax bulk carriers at anchor in Bohai Bay laden with Australian metallurgical coal that has been delayed since arriving more than 12 weeks’ ago, Lloyd’s List research shows.

The excessive queues and waiting times have most affected post-panamaxes given they are heavily used in the Australia — China trade, according to the shipbroker noted.

Australia ships some 55% of its 170m tonne metallurgical coal exports to China, in trade worth some $23bn according to government forecasters.

The trade, alongside shipment of steam coal used for power generation, is a major employer of bulk carriers in the Pacific basin.

The biggest cargo route — iron ore exports to China from Australia are said to be unaffected because alternative sources of the steelmaking ingredient are more difficult to procure.

Shipbrokers have told Lloyd’s List that there are still some vessels on their way to China or that some have fixed since news of the ban first emerged.

“It’s an ultimate nightmare scenario,” said a Singapore-based broker, “as we are unsure what happens to our ships waiting to discharge Australian cargoes at Chinese ports.”

Other than the plethora of claims that could arise out of disputes between charterers and end users, prolonged storage of this cargo on the ship increases the risk of exposure for the crew.

Coal cargoes are well known to be susceptible to self-heating, said Standard P&I club’s senior surveyor Akshat Arora.

The self-heating process causes oxygen depletion and emission of carbon monoxide gas, which is a toxic, odourless and colourless gas. Some types of coal may also emit methane, which is a flammable gas.

Trade tensions between Australia and China have been rising for several months, after Canberra backed calls for an international investigation into the spread of the coronavirus pandemic from China.

Despite the verbal ban, Braemar saw discharges of Australian coal in China jump by 21% month on month in October to 6.4m tonnes although it is unclear how much of this had been waiting to clear for an extended period.

But Australian coal shipments are still likely to remain depressed, Braemar conceded, and the availability of substitutes from other sources is already reshaping coal trade flows.

“While Australian cargoes are being resold into different markets, Chinese buyers are looking to other suppliers for high-spec coal.”

Most of this increased volume has come from ports on Russia’s east coast, such as Vostochny and Shakhtersk on panamaxes and supramaxes.

If restrictions on Australian coal continue into next year, China will have to scramble for other sources to satisfy its appetite for coal given the limitations on Russia’s production capabilities. This could translate to more long-haul trade from Canada and the US.

But because of the lack of cost-effective alternatives, analysts believe that there will be an increase in the flow of overland coal volumes into China from Mongolia hurting the demand for bulk carriers.

Panamax average time charter rates were assessed at $10,800 daily by the London-based Baltic Exchange, the lowest since mid-June.

Customs agents are also suspending imports worth a further $6 billion of Australian timber, copper ore and concentrate, sugar, wine and barley according to Chinese media reports.  There has been no confirmation of the ban at ministerial level, Australian government officials said.

China is Australia’s largest trading partner, but diplomatic relations have soured in 2020, over a host of political disagreements. The Australian government has criticised the Communist’s party intelligence networks and surveillance within Australia and banned technology company Huawei.

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