In the minerals, metals, and mining industries China is undeniably a major world player, though trying to decipher the enigmatic trade practices of the CCP, the Chinese Communist Party under the strongarm leadership of Xi Jinping requires constant focus.
At Resource Erectors we’ve made it one of our priorities to keep a close watch on the wild fluctuations of the CCP as it struggles to mix trade policies with global domination politics, made even more erratic this year by the increasing world attention on their dubious role in the Covid 19 crisis.
Last January of 2020 we took a look at China’s tendency to overplay its hand in the critical minerals sector, where it has a near-monopoly on 35 critical rare earth minerals. That market dominance led President Trump to declare a national emergency in the US mining industry as we move into the final quarter of 2020.
Through all of China’s bullying attempts to maximize their resource export leverage, we’ve kept an eye on the Trump administration’s efforts to initiate new mining projects and secure more reliable US domestic supplies. A robust, restored US mining industry will free the nation from dependence on China and the fickle trade practices that make them the weakest link in the rare earth elements supply chain.
Even before the global Covid 19 crisis, now scathingly referred to as the “CCP virus” or the “Wuhan virus” by many offended nations around the world, China’s iron fist seemed to swing with abandon. This puzzling behavior often seems to work directly against the communist superpower’s own economic interests.
And now the hotheads of the CCP are risking their own vital imported coal and iron-ore supplies on which China’s industry itself relies, by alienating their top supplier, Australia. And as we’ve seen so often in 2020, the coronavirus crisis is once again at the root of the supply chain disruption.
Australia’s Call for Covid 19 Investigation May Have Triggered a Coal Ban in China
A thoughtful op-ed by Reuters columnist Clyde Russell caught our eye this week when mining.com posted his October 13, 2020 article, China’s reported ban on Australian coal escalates dispute beyond mere nuisance. While President Trump shrugged off the Covid 19 virus a few weeks back returning to office saying that he felt better than he has in 20 years, the conservative Canberra government of Australia still wants definitive answers. They’ve called for an international investigation into China’s role in the novel coronavirus pandemic, which originated in China before spreading globally.
According to Russell, and mining.com’s Bloomberg article of October 12, China hasn’t put in place any official overt ban on Australian coal, but verbal orders to traders, power station managers, and steel mills have prohibited the purchase of both thermal and coking coal from Australia. Iron-ore and LNG, liquid natural gas, also come from China’s top supplier, Australia. These are all the critical resources required for making steel, making the unofficial slowdown of Australian coal even more puzzling.
Does CCP China fear an investigation for their Covid 19 culpability to such an extent that they would place a fundamental building block for general manufacturing such as their own steel industry at risk in order to deter any investigation? Apparently they are already slapping Australia’s economic wrist with effective bans on barley, while restricting imports of wine and meat. They’ve also discouraged travel to Australia by students and other Chinese citizens.
The typical unwritten tactic in China is to enforce a “slowdown” at customs or command port officials to cease offloads of Australian coal. The CCP has pulled these stunts before, most recently in March of 2019, but the chokehold was relaxed and shortfalls were quickly made up for by the following April. So there is some hope that this latest slowdown is mere CCP posturing.
Coal Price Manipulation by the CCP Could Backfire on China
While low-grade thermal coal isn’t a problem for China since they have a domestic supply of their own, their steel industry giants are ravenous for overseas imports for higher grade coking coal. Australia is one of their top suppliers, providing ⅔ of China’s total demand. So the Canberra government is certainly not without powerful leverage of its own in the trade skirmishes we’re seeing in the wake of the Covid 19 crisis. Australia holds the world’s top spot supplying 55% of the global coking coal market.
It’s worth mentioning that China has already applied that thermal coal leverage against Indonesia, their largest historical supplier. At just 86.63 million tons shipped to China in 2020, Indonesia has seen a 17% year-over-year decrease. China is blatantly attempting to manipulate the price of coal to benefit their own domestic mining interests with this maneuver.
But that’s a play they can’t make with coking coal that has us wondering if the CCP leadership is aware of the difference.
The Australian Advantage in a Trade War Escalation With China
Cutting off vital coking coal imports from Australia could force China to establish new supply lines from the US, Canada, Russia, or neighboring Mongolia. Relying on the US supplies could be precarious. The coal industry and exports here are all-too-often obstructed by environmentalist red tape, such as the 3-state Supreme Court battle over coal export terminals. That case pitted Wyoming and Montana against Washington state over port access for exporting coal to China that we reported about here at Resource Erectors last January of 2020.
If China did elect to move to alternative coking coal imports, Australia’s vast supply would be available at cheaper prices to the diverse range of other regional Asian manufacturing customers. That would open the door to a significant competitive advantage for China’s industrious steel exporting rivals in Japan, South Korea, and India.
But after all is said and done, if China does choose to pay that high price to chastise Australia, Prime Minister Scott Morrison can always play his own trump card by cutting off the 68% of China’s iron-ore from Australia that could in no way be compensated by the rest of the world. Such a move would bring the China bully to its knees by severely impeding the CCP steel industry.
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