Australia finds new markets for coal, barley amid China commerce battle

A paddle wheel reclaimer stands next to a pile of coal in the Newcastle Coal Port in Newcastle, New South Wales, Australia on October 12, 2020.

David Gray | Bloomberg | Getty Images

China’s restrictions on Australian exports aren’t as damaging as initially thought as Australia found new markets for its goods, analysts say.

Tensions between the two countries have increased and worsened in recent months after Australia backed a call for a global investigation into China’s handling of Covid-19.

Beijing has since taken several measures to restrict Australian imports, ranging from imposing tariffs to imposing other bans and restrictions. This affected goods such as barley, wine, beef, cotton and coal.

Taken together, target exports in 2019 were around $ 25 billion, or 1.3% of Australia’s gross domestic product, according to the Lowy Institute in Australia.

With China being Australia’s largest trading partner, analysts expected Australia to be hit hard by the restrictions.

But they now say Australia managed to contain the damage by diverting much of its exports to other countries.

Australian coal exporters seem to be quite successful in switching to other markets.

Roland Rajah

senior economist, Lowy Institute

“Exports to China have predictably collapsed in the sanctioned areas, but most of this lost trade appears to have found other markets,” said Roland Rajah, senior economist at the Lowy Institute.

Overall, affected Australian exports to China – with the exception of coal – remained stable at just over $ 9 billion for most of 2020, Rajah said. They eventually dropped to around half that amount when restrictions escalated in late 2020, he added.

After the restrictions, the same goods found other export markets, and trade for these goods increased by about $ 4.2 billion on an annual basis, making up most of the losses from China, according to Rajah.

Thriving Sectors: Coal, Timber, Seafood

Coal is one of the raw materials that is thriving despite the Chinese ban.

“Australian coal exporters seem to be quite successful in redirecting to other markets,” Rajah said in a recent statement. “Exports to other markets initially rose when China started to generally reduce its coal imports for the first time around the middle of the year. The trend then accelerated when China began targeting Australian coal from October 2020.”

Through January 2021, Australian coal exports to the rest of the world were $ 9.5 billion higher on an annual basis than before the ban, he said.

Above all, Australian coal in India has gained market share, according to Rajah.

Marcel Thieliant, senior economist for Australia and New Zealand, agreed.

While Australia’s non-iron ore exports to China plummeted 40% last year, “coal miners have been able to redirect their supplies to other countries,” he said. “The result is that the conflict is not hurting the Australian economy as much as many think.”

We are also always looking for other opportunities to pursue, be it through our existing trading partners or by opening up new avenues.

Dan Teh

Australian Minister of Commerce

It’s not just coal. Other Australian exports affected by these restrictions are showing “even clearer signs of significant trade diversion,” said Rajah.

He listed barley, cotton, seafood and wood that opened up new markets.

“Sales of these products to other markets rose sharply, but only after China’s sanctions were tightened in late 2020 – with the sharp shift suggesting that this was actually mainly due to a trade diversion.”

Affected sectors: beef, wine

However, the analysts noted that Australia was struggling with shipping beef and wine.

“Australia’s wine industry is struggling to make up for the loss of the premium Chinese market,” noted Rajah. Earlier this year, China imposed anti-dumping duties on some Australian wines, claiming that Australia dumped and subsidized its wine exports – thereby harming China’s domestic wine sector.

Read more about China from CNBC Pro

Beef was also affected when China suspended imports from some Australian beef suppliers.

However, both Rajah and Thieliant say the slowdown in exports may not only be due to trade tensions with China, but also largely due to supply problems following the recent drought.

“It is also noticeable that copper exports have not increased much, even if the price of copper has increased by a third compared to pre-virus levels,” Thielant told CNBC. “This also suggests that Australia was struggling to move copper elsewhere.”

But Australia is not sitting back. It is looking for new markets as the strained relationship with China continues.

Deputy Prime Minister Michael McCormack told CNBC in May that the country is looking to diversify its markets.

As an example, he said Australia had just sent its first shipment of barley to Mexico.

Beijing last year imposed anti-dumping and anti-subsidy tariffs on Australian barley – a move that effectively excluded the country’s barley producers from the Chinese market.

Last week, the Australian Trade Minister said he would ask the World Trade Organization to set up a dispute settlement body to resolve concerns about such restrictions China is imposing on Australian barley.

Australia’s Trade Minister Dan Tehan told CNBC on Wednesday that his country was also considering involving the WTO in the ongoing wine dispute with China.

Tehan reiterated the message that Australia is looking for ways to find new markets for its products. She is currently negotiating a free trade agreement with the UK and the European Union.

“We’re always looking for other opportunities to pursue, be it through our existing trading partners or by exploring new avenues,” he added.

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