US president-elect Joe Biden's election victory could indirectly ease Australian coal suppliers' access to China by dampening geopolitical tensions, although this is unlikely to be immediate and could hinge on actions that outgoing President Donald Trump may take before next January's handover.
Although vote counting is not officially over in a few swing states, most mainstream US media outlets have called the election after concluding that Biden has secured sufficient electoral college votes to secure victory.
China has imposed an informal ban on Australian coal since April, which some market participants said is rooted in wider geopolitical tensions between Beijing's and Australia's ally the US. This started with a trade war between the two countries before intensifying with the Covid-19 pandemic.
Beijing has refrained from officially clarifying its ban on Australian imports, presumably to avoid violating its World Trade Organisation obligations. Many Chinese coal consumers have told Argus that they were verbally warned by Beijing not to sign any term contracts for Australian coal at a recent trade fair in Shanghai.
More predictability
A Biden presidency is unlikely to immediately reverse US-China tensions as both major parties in Congress have reached a consensus on taking a tougher stance on China. But Biden has been regarded by Beijing as a more predictable president to deal with than Trump.
Biden has previously described Russia, rather than China, as a greater threat to the US. This suggests that a Biden presidency could take a more conciliatory approach towards China compared with the incumbent president, even though any such approach is likely to develop with caution against a backdrop of US-China rivalries.
Some Chinese traders and importers are cautiously optimistic that any de-escalation of US-China tensions could provide the basis for Australia-China tensions to ease, given that Australia and the US have been allies. But some traders said it will may take a long time to heal the China-Australia rift and say they will proceed carefully. Beijing does not want to risk losing face by importing Australian material after strongly objecting to Canberra's call for an independent inquiry into the origins of the Covid-19 pandemic.
Trump could also take steps that escalate tensions with China before handing over to Biden in January. But Beijing is likely to remain calm in the face of such actions, as it prepares to deal with a new incoming US administration.
A Biden presidency is expected to strive to promote renewable energy and clean energy infrastructure under a long-term target of net-zero emissions by 2050. His administration will aim to reduce coal consumption under the US's original commitments to the Paris climate change agreement concluded in 2016. He can be expected to rejoin the Paris agreement after Trump withdrew the US from the climate pact.
China still needs Australian coal
But China's appetite for coal is unlikely to be dampened in the short term as the country cannot immediately replace its coal-fired plants with renewables, despite setting a carbon-neutrality target by 2060 and promoting renewable energy. China is likely to remain an important market for Australian coal in the short term, should tensions between the two countries ease.
China's informal restrictions on seaborne coal, especially from Australia, have caused domestic shortages and spot prices to soar in the face of winter restocking demand, with coastal utilities the hardest hit.
Delivering domestic coal, which is mostly produced in north China's inland provinces, to coastal utilities by rail is expensive and logistically complicated, although rail remains the viable mode of delivery for most inland utilities. Many of China's coastal utilities are reluctant to significantly increase their spot purchases from the key coal transshipment ports of Qinhuangdao and Caofeidian despite the impending winter because current domestic spot prices have risen well above the government-set upper limit of 600 yuan/t ($90.75/t), which is deemed too high.
Beijing's informal curbs on Australian coal imports have tightened so much that a Chinese state-owned utility possibly bought a rare Capesize cargo of South African NAR 5,500 kcal/kg coal at a price that is well above offer levels of similar quality Australian coal. Freight costs for transporting South African coal to China are usually also significantly higher than for Australian material because of the longer sailing time involved.
Although China has also increased its imports of Russian coal recently, both South African and Russian NAR 5,500 kcal/kg material contain some trace elements that make them less appealing to typical Chinese customers than Australian coal.
Australian coal commands a special market position in China that makes it difficult to be replaced by material from other origins in the longer term. But even with a current wider theoretical arbitrage for Australian spot coal into China of nearly Yn280/t, many Chinese consumers remain worried about the risk of getting the coal through customs.
Although China has touted self-sufficiency in the face of deteriorating international relations with other countries, it has come at a heavier price for utilities that rely on seaborne coal. This winter could be a bitter one for Chinese utilities that have lost access to competitively priced Australian product but are reluctant to pay more for increasingly expensive domestic coal.
If trade and diplomatic tensions between Australia and China ease slowly on the back of better US-China relations under a Biden administration, Beijing could, out of necessity, gradually and quietly relax its restrictions against Australian coal.
