“The scale of China’s domestic coal production, and the fact this output can – in principle – be exported, mean that internal developments in China have the potential to significantly alter the dynamics of the global coal market,” the RBA said.
Australia’s central bank cited statistics which revealed that a shift by Chinese producers from domestic supply to exports prior to the commodity boom had China becoming the third largest thermal coal exporter in 2003, occupying 15% of global trade.
“This surge in Chinese coal exports partly accounts for the 20 per cent decline in global coal prices between 2001 and 2003,” the RBA said.
With Chinese coal exports falling by some 40% between 2003 and 2007, the RBA indicated the ongoing financial crisis and its impacts on China could result in impacts to the global coal trade similar to the early years in this decade.
RBA said the “extent to which Chinese domestic supply adjusts to the slowdown in Chinese demand” will be particularly relevant to coal prices.
In mid-December, ANZ analysts had already indicated there could be negative impacts for Australian thermal coal producers if China’s power generation slump continued, leading to China swinging excess thermal coal supply into the export market.
Looking to the next round of upcoming fixed coal and iron ore contracts, the RBA noted they were expected to be settled at significant discounts to the current 2008/09 contract prices from the views of market analysts who have significantly revised down their expectations.
In a separate report on mining sector revenue, also released this week, the central bank said the earlier run-up in bulk commodity prices (before the recent sharp decline) along with the depreciation of the exchange rate meant mining receipts in Australian dollar terms are likely to remain at comparatively high levels by historical standards.
Figures gathered by the RBA from the Australian Bureau of Agricultural and Resource Economics, AME Mineral Economics and the International Energy Agency had Australia accounting for 57% of coking coal exports in 2007, Indonesia 13%, USA 12%, Canada 11% and Russia 6%.
In the same year 27% of thermal coal exports came from Indonesia, Australia 16%, Russia 12%, Colombia 10% and South Africa 9%.
China was a 6% net importer of thermal coal for the year and was unaccounted for as either an importer or exporter of coking coal, meaning it represented less than 1% of trade.
According to data for the first nine months of 2008, coking coal accounted for 11% of Australia’s total nominal exports, thermal coal was 5% and iron ore was also 11%.
Coal mining revenue for 2008 was roughly 3% of Australia’s GDP, according to RBA estimates.
