PM puts China’s Aussie thermal coal ban in perspective, but $100M+ annual loss to Qld state budget possible

Prime Minister Scott Morrison did a good job yesterday at putting China’s reported ban on Australian thermal coal into perspective, pointing out Japan is our largest customer for thermal coal, and it takes twice the amount of thermal coal as China. Check out the PM’s comments on Sky News: Coal added to industries China ‘has crippled through sanctions’. Also worth checking out is this excellent ABC video which notes 16% of Australia’s $26 billion of annual thermal coal exports go to China, which is approximately $4 billion nationally: What’s at stake if China bans Australian coal? The ABC, which has obviously spoken with industry representatives, suggests there is a good chance the rejected thermal coal can be sold into other markets, mitigating the potential loss.

What’s the potential impact on Queensland? From Queensland coal industry statistics published by the state government we know that Queensland exported 61 mega tonnes of thermal coal in 2019-20 compared with 152 mega tonnes of coking coal (check out Total coal exports by coal type). Unfortunately, the government doesn’t appear to publish a cross-tabulation of exports by coal type and country of destination.* But we know that, in 2019-20, 42 mega tonnes out of a total of 213 mega tonnes of all types of coal, were exported from Queensland to China, or 52 mega tonnes if you include Hong Kong (check out Coal exports by country). A straightforward estimate of thermal coal exports to China (including Hong Kong) would be the share of total coal exports going to China of 24% x 61 mega tonnes of total thermal coal exports, giving approximately
15 mega tonnes of thermal coal going to China. But what if a higher proportion of China’s coal imports are thermal coal than the proportions for other countries? If half of Queensland’s coal exports to China were of thermal coal, we’d be talking
26 mega tonnes.

Let’s use 15 to 26 mega tonnes as a range for Queensland’s annual thermal coal exports to China in the absence of actual data. Using the Queensland Budget forecast thermal coal price of A$94/tonne (approx.) we get an estimate of the total value of thermal coal exports to China affected by the ban of $1.4 billion to $2.4 billion. Applying a royalty rate for coal of 7%, as per the Business Queensland website, we get a potential annual loss to the state budget of $100 million to $170 million if our coal exporters can’t find alternative customers, a reasonable amount of money but not a devastating loss. I should note there may also be impacts on other tax revenues if coal production is cut back and jobs are lost. If anyone has superior data or information that would improve these estimates please let me know in the comments.

The impact would be much worse obviously if the more valuable coking coal exports were also affected, so we’re lucky the ban apparently only applies to thermal coal at this stage.

All said, the ban is unwelcome and comes at a bad time, when the Australian economy is recovering from the COVID-recession and the Queensland state budget, like budgets for other states, is already heavily in deficit.

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*Update: since posting this on Tuesday 15/12/20 I’ve learned that the Government does actually publish quarterly data by country and coal type. The data, however, aren’t 100% complete (i.e. not all mines have reported) and are subject to revisions, as noted in the workbook. The current estimate in the data set of thermal coal exports to China for 2019-20 of a bit under 10 mega tonnes (and under $900M of value) looks low to me. For instance, in 2018-19, Queensland exported 16 mega tonnes of thermal coal to China and, in 2017-18, exports were 21 mega tonnes. Possibly the drop in 2019-20 was due to greater reliance on domestic coal by China which has been Chinese Government policy, or it could be an issue with the data. I’m going to look more into this over the next few days and will post again on it in the future. If thermal coal exports from Queensland to China are only running at around 10 mega tonnes per annum then the royalties loss from the latest ban may only amount to $60-70M per annum.

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4 Responses to PM puts China’s Aussie thermal coal ban in perspective, but $100M+ annual loss to Qld state budget possible

  1. Lewis says:

    Hey Gene, thanks for the post. You should be able to find a detailed breakdown of coal type by country if you take a look at the dataset ‘Exports by collieries to overseas countries’ from QLD government. It looks like it’s about 10 mega tonnes thermal coal going to China.

  2. Cameron says:

    It makes sense that China imports a higher proportion of metallurgical (coking) coal relative to thermal coal because about 50% of the world’s steel output is manufactured there.

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