With iron ore continuing to float the economy, the question of how China truly feels about Australian coal is stealing headlines.
The Australian reports today that the nation’s total exports to China have broken a new record. This implies that China isn’t all that mad given it is still spending its money here.
Meanwhile, the Australian Financial Review poses the question of whether or not the China coal ban is permanent and what that means for the economy.
So what’s actually going on? What does China really think about Australian coal?
Iron ore exports undermine Beijing’s ban
According to The Australian, the total value of Australia’s exports to China rose 8.2% in January and February 2021. Iron ore led the pack.
China imported $26.6 billion worth of exports from Australia in the first two months of the year. This beats the last record set by the first two months of 2020 when exports pulled in $24.5 billion.
The article notes that the “elevated price of iron ore and liquefied natural gas — Australia’s two biggest exports to China — more than compensated for crippling strikes on wine, lobster, timber, barley, beef and even coal, Australia’s third biggest export to China.”
Is it a trade war if you spend $148 billion?
In 2020, Australian exports to China reached the second-highest level in history, totalling $148 billion.
The AFR report draws attention to the coal that China is still buying regardless of the “trade war”.
According to the AFR, China likes to buy intermediate quality coal from Australia, and companies like BHP Group Ltd (ASX: BHP) are happy to sell it to them.
Coal quality is defined by kilocalories, which determine the efficiency of the energy created as well as the emissions that are produced — 5500 kilocalorie coal and up is considered high quality.
However, Yancoal Australia Ltd (ASX: YAL) CEO David Moult comments in the AFR that being able to accommodate different grades of coal is a strategic business move. He believes Australia is lucky to be one of the only producers that can offer a spectrum of grades.
Foolish takeaway
Fools say that there are two sides to every story and then the truth. Iron ore is not going out of style in Australia any time soon.
While geopolitical sagas will continue to rattle headlines, businesses find a way to adjust to changing environments. Although we hear a lot about a trade war with China, the amounts being traded seem to tell a different story. At least for today.
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Motley Fool contributor Gretchen Kennedy has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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