Australia has long been a dominant force in the global coal market, but the relationship between Australia and its largest coal customer, China, took a sharp turn in late 2020. A mix of political tensions and trade disputes culminated in a ban that shook the coal trade while also underscoring the intricate ties between geopolitics and global commerce.

We'll delve into the story of Australia's coal export challenges following China's ban, the record-breaking waiting times at Chinese ports, and how the industry has adapted in the aftermath.

A Political Rift Sparking Economic Turbulence

The tensions between Australia and China began escalating from 2018 onwards over various issues, including Australia's decision to ban Huawei from its 5G network and its later calls for an independent investigation into the origins of COVID-19. By late 2020, these tensions reached a critical point, and China imposed an unofficial ban on Australian coal imports.

This had a significant impact on the global coal market, as China had been the largest buyer of Australian coal. The ramifications were immediate and severe. Dozens of ships carrying Australian coal were left stranded at Chinese anchorages, some waiting for months to unload. At its peak, the waiting times reached record levels, with vessels waiting to unload millions of tons of cargo. In the first half of 2021, the average waiting time reached 200 days, but throughout the crisis there were also ships that had waited more than 300 days in Chinese anchorages.

Impact on Market Share and Trade Flows

Before the ban, Australia had been supplying about 40% of China’s total seaborne coal imports. In 2019 alone, China imported almost 100 million tons of coal from Australia. As intended, the ban led to a sharp decline in these numbers.

Adapting to the New Reality

The China ban forced Australia to shift strategies quickly. Mining companies sought to renegotiate contracts and secure long-term agreements with buyers in other regions. The Australian government also ramped up efforts to diversify its export markets, promoting coal in regions that had been previously overlooked.

Moreover, this shift highlighted the vulnerabilities of relying heavily on a single market for export revenues. The ban served as a wake-up call for Australian coal producers, who have since increased efforts to mitigate similar risks in the future by diversifying their customer base and investing in other forms of energy exports, such as liquefied natural gas (LNG).

By 2021, the absence of Australian coal in China led to a significant reshuffling of the global seaborne coal trade. Indonesia, Russia, Canada, Colombia, and Mongolia (by land) quickly filled the void left by Australia, with Indonesia becoming the top exporter of seaborne coal to China. Australia’s market share fell to nearly zero in 2021, and by 2022 it was effectively zero. At the same time, China diversified its coal imports, reducing its reliance on a single source for the Coking Coal trade in particular.

Nevertheless, Indonesia grabbed the lion's share of China's seaborne Steam Coal imports, peaking at 78% at one point. While it's market share now sits in the 50%-55% range overall, Indonesia remains a critical supplier.

Russia's market share surged during Australia's absence, rising from 10% to over 31% by mid-2022. In 2024, it's standing around 14%-18%, reflecting strategic market shifts.

The Fallout: Australia's Lowest Coal Export Year in a Decade

The consequences of the ban were felt in Australia. In 2022, the country recorded its lowest coal export volume in a decade, at less than 330 million tonnes. This was a significant decline from previous years and a 7% year-over-year decrease, reflecting the loss of one of its largest markets.

With China no longer an option, Australia had to find alternative markets for its coal. Japan, South Korea, and India became the primary destinations for Australian coal, with India increasing its imports significantly. Europe, facing energy shortages due to geopolitical issues of its own, also began importing more Australian coal. These shifts helped to cushion the blow, but the loss of the Chinese market left a dent in Australia’s coal export figures regardless.

However, it should be noted that in 2022, with the full withdrawal of Australian coal, China imported significantly less coal in total than the previous year, almost equalling COVID-levels in 2020. While 2021 and 2022 saw significant changes in the market share of Australia's exports and China's imports, in the end both countries experienced reductions in their Coal trade flows.

In Closing

After nearly two years of a ban, Australia's coal exports to China picked up in 2023 but remain well below pre-ban levels. With Australia now at ~20% market share, the country has already recovered half of its share.

The gradual recovery of Australian coal in China's market, driven by improving diplomatic ties, still has a way to go to reach its former near-40% hold. The competition with cheaper alternatives like Indonesia and Russia continues to reshape the market.

The China-Australia coal dispute is a textbook example of how political tensions can dramatically reshape global trade dynamics. While the ban led to significant short-term pain for Australia's coal industry, it also prompted a necessary shift towards market diversification. As the country continues to navigate the complexities of the global coal market, the lessons learned from this episode will undoubtedly influence its strategies moving forward.

In the broader context, the story of Australia’s coal exports post-China ban underscores the importance of resilience and adaptability in a world where geopolitics and economics are ever so intertwined.