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"Game Over For Aussie Coal" As China Levies Tariffs After 10-Year Hiatus

Just months after unofficially entering the currency wars, China has torn another page from the 'causes of the great depression' playbook. As Reuters reports, for the first time in almost a decade, China - the world's top coal importer - will levy import tariffs on the commodity crushing Australian (the biggest shipper of coal to China) dreams of a commodity-based renaissance. "China is clearly moving to protect its local miners," explained one analyst, which is key since so much of the credit market is predicated on these mal-invested entities - as the China National Coal Association, urged Beijing to act swiftly to support the besieged sector, where 70% of the miners were making losses and more than half owed wages. Crucially, Indonesia - the second-biggest shipper of the fuel to China - will be exempt from the tariffs, which one trader exclaimed, means "It is game over for Australian coal."

As Reuters reports,

China, the world's top coal importer, will levy import tariffs on the commodity after nearly a decade, in its latest bid to prop up ailing domestic miners who have been buffeted by rising costs and tumbling prices.


The sudden move by China to levy import tariffs of between 3 percent and 6 percent from October 15 is set to hit miners in Australia and Russia - among the top coal exporters into the country.


Traders said Indonesia, the second-biggest shipper of the fuel to China, will be exempt from the tariffs since a free trade agreement between China and the Association of Southeast Asian Nations (ASEAN) means Beijing has promised the signatory nations zero import tariffs for some resources.


A 3 percent import tariff imposed on lignite last year did not include Indonesia.


"China is clearly moving to protect its local miners. Given that the tariff also covers coking coal, Australia, being the top supplier to China, is likely going to be the most affected," said Serene Lim, an analyst at Standard Chartered.


The Ministry of Finance said in a statement on Thursday that import tariffs for anthracite coal and coking coal will return to 3 percent, while non-coking coal will have an import tax of 6 percent. Briquettes, a fuel manufactured from coal, and other coal-based fuels will see their import tariffs return to 5 percent.


Import taxes for all coals, with the exception of coking coal, was at 6 percent prior to 2005 before they were scrapped in 2007. Coking coal import taxes were set at 3 percent before being abolished in 2005.




"With the latest tax, Chinese can only offer around $62, which means Australian sellers will need to cut prices by about $3.50-$4 a tonne," said a senior trader at major international trading house.


"It is game over for Australian coal."

So Protectionism it is...

The latest effort to limit imports comes after nearly a year of intense lobbying by China's top miners for Beijing to stem the flood of cheap supplies that have inundated the domestic market and dragged local prices to a six-year low.



The China National Coal Association, which had submitted proposals to reduce domestic output, reduce the tax burden and regulate imports, had urged Beijing to act swiftly to support the besieged sector, where 70 percent of the miners were making losses and more than half were owing wages.


On a broader level, the persistent slump in coal prices has put a severe financial strain on coal-dependent provinces such as Inner Mongolia, Shanxi and Shaanxi, which are already struggling with high debts and a weakening property market.




Separately, trade sources said Beijing has also asked its state-owned power utilities to cut coal imports by as much as 40 million tonnes from September to December, a move that is set to hit imports in the fourth quarter.

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The news brought an angry reaction from the federal opposition and the Australian mining sector. The Minerals Council of Australia has urged the Australian government to initiate urgent discussions with Chinese counterparts to seek the reversal of the decision.

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That won't help global trade volumes and growth...