What could stand in the way of a $20 billion Indian-owned coal mine in Australia? The answer is China’s domestic coal policies.
In the third quarter of last year coal prices began to rally. Australian miners – some of whose mines were previously in care and maintenance mode – rejoiced as exports grew again. The trend was useful for supporters of the proposed Carmichael mine in Queensland, which is set to be developed by India’s Adani Group, but faces staunch opposition.
The price spike was the result of demand from China. The country cut coal production days from 330 to 276 last year as it tried to clear up overcapacity and shutter many smaller, less productive and polluting mines. China’s domestic policy had implications for coal miners around the Asia-Pacific region.
The A$21.7 billion ($16 billion) Carmichael mine, if completed, will be one of the largest in the world. It is slated to produce 60 million tonnes of coal annually for the next 60 years. Its success will depend on China. Reports from the Institute for Energy Economics and Financial Analysis (IEEFA) and the Canberra-based think tank The Australia Institute (TAI) have both pointed to China’s increasing influence in setting global coal prices. And the TAI report suggested fairly calamitous prospects for the New South Wales coal industry should the Carmichael mine reach its capacity. It said that adding 60 million tonnes of coal to the global market annually would drive down prices, adding 6% to global supply of thermal coal – in an otherwise flat market in demand terms.
IEEFA noted that both India and China are weaning themselves off coal, albeit slowly, writing that Chinese production was down 9.4% last year in a “global game-changing development”.
It added that this leaves “global imported thermal markets structurally challenged – and shows why it is not in Australia’s economic interest to flood the export thermal coal market with more low-quality coal.”
The Australia Institute report’s author, economist Rod Campbell, told WiC that China’s coal policies will have an impact on the Carmichael mine and the Australian coal industry more generally.
“It means international coal prices are set in Beijing now and that’s not really the sort of situation you want when undertaking a large capital investment that has to last 60 years,” he observes.
Adani counters the claims of a shaky market, saying it will be selling the coal to itself, essentially. That said, it has previously claimed otherwise in court proceedings in Queensland in 2015, suggesting that less than half the Carmichael coal will go to India and much of that not directly to Adani. In other words, global market demand – primarily from China – is going to matter.
Most major bodies, like the International Energy Agency, suggest that China reached ‘peak coal’ in 2013 and has been producing and using less since then. There is certainly a greater determination to cut back on coal and move into renewables like solar (which in turn is driving the expansion of lithium mines in Western Australia, as we reported in WiC359). The 13th Five-Year Energy Plan mandates 15% of energy must come from non-fossil fuel sources by the end of the decade.
Nor is it only the Adani mine that could face price pressures. Campbell also explained: “There is the coal-producing Hunter Valley in New South Wales also. Not only will it be affected by Adani’s mine, but Beijing’s control of coal prices puts more stress on an area that has already been struggling.”
Ergo, in Australia, even with a major Indian investment, mining is still all about the state of Chinese supply and demand.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.