Donald Trump was right about the wrong aspect of a trade war, and Australia will take it

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Coal is more than just a volume story, with prices moving in favour of Australia and against China. Australia’s coal exports were worth A$3.7bn ($2.87bn) in December, the most since May 2020, according to data from the Australian Bureau of Statistics.

The benchmark Australian thermal coal price, the Newcastle weekly index, as assessed by commodity price-reporting agency Argus, ended at $87.52 a tonne on January 22. That was up 89% from its 2020 low of $46.37, reached in September, at a time when market concern over the impact of China’s effective ban on imports was highest.

The rise in seaborne coal prices has made it more expensive for China to buy imported coal. That has allowed domestic prices to remain elevated as they aren’t facing competition from overseas producers.

The price of thermal coal at Qinhuangdao has retreated in recent days, ending at 873 yuan ($135.14) a tonne on January 26, down from the recent high of 1,038 yuan. But even with the recent drop, the Chinese benchmark is still some 87% higher than the 2020 low of 467 yuan a tonne from May — well above the 520-570 yuan range believed to be preferred by the authorities as it ensures mines remain profitable but fuel costs for utilities aren’t too high.

It’s not just with coal that Australia seems to be more than holding its own in the trade dispute: exports of cereals rose to A$1.19bn in December 2020, the highest on record and almost three times the value of shipments in November.

China imposed an 80.5% tariff on imports of Australian barley in May last year, collapsing the trade between the two nations. But while Australian barley farmers were initially hit hard, they have successfully managed to switch to alternative markets or plant other crops.

China also has an unofficial ban on imports of copper ores and concentrates from Australia, which had been its fifth biggest supplier. However, a global shortage of mined copper ores means China is being forced to pay more for supplies. At the same time, its smelters are having to pay less for treatment and refining charges as they struggle to source material.

Again, what has happened is that China has cut itself off from a source of supply at a time of global shortage. It has imposed costs on itself and no penalty on Australian copper miners that can sell easily to other buyers.

China hasn’t mandated any restrictions on the most important commodity it buys from Australia, iron ore, but it is having to pay handsomely for buying the steel-making ingredient given supply issues in Brazil, the second-largest exporter after Australia.

Australia’s exports of metal ores, which include iron ore and copper, rose to a record A$15.2bn in December, up 22.6% on November, according to official statistics.

Overall, Australia’s exports to China were A$13.34bn in December, the highest since June, reflecting strong demand for iron ore, liquefied natural gas and some agricultural commodities.

Since China started its trade actions against Australia, the numbers seem to be tilting heavily in favour of Canberra. This supports the lesson from the US-China trade dispute: if you still need the products you are targeting for tariffs or import bans, it will cost more to source them from other suppliers. 


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