Australia loses market share in China’s coal

Australia loses market share in China’s coal

By Virginia Marsh in Sydney and Richard McGregor in Beijing

Published: January 22 2008 15:08 | Last updated: January 23 2008 00:22

Australia has lost substantial market share in China in coal, its biggest export commodity, partly because of the severe port and rail infrastructure bottlenecks, which have plagued its overheating economy in recent years.

China, the world’s largest coal consumer, reduced its imports from Australia by 34 per cent to 4.52m tonnes last year, according to figures released on Tuesday in Beijing by the Chinese customs authorities. Vietnam was its biggest foreign supplier, with sales jumping 23 per cent to 24.6m tonnes.

The data will add to an already intense debate in Australia, the world’s biggest coal exporter, over the best way to solve constraints preventing resources companies from capitalising fully on booming global demand.

Earlier this week, Kevin Rudd, Australia’s new prime minister, announced the creation of a national infrastructure council, hoping his Labor party’s clean sweep of power at federal and state levels will help produce faster solutions than its conservative ?predecessor.

But the difficulty in easing export hub congestion was highlighted on Tuesday when BHP Billiton announced it had approved its share of a significant expansion of the port of Newcastle, the world’s largest thermal coal export ?facility.

In spite of efforts to fast track the project, which will add up to 30m tonnes a year to coal loading capacity of 89m tonnes, shipments from the new facility will begin only in late 2010.

Analysts estimate the nearby Hunter Valley producers, which also include Xstrata, could lift exports by as much as a quarter this year if more capacity was immediately available at Newcastle. However, analysts added that Australia’s falling market share in China was also a function of price. Spot prices for Australian coal more than doubled last year while local freight costs are also higher than from competitors such as Indonesia and Vietnam.

Japan is by far Australia’s most important coal buyer, followed by Korea and Taiwan. China remains a relatively small buyer, but has potential to grow, having become a net importer for the first time last year.

Utilities in southern China were forced to look overseas for supplies, with bottlenecks in the mining regions in the north of the country making imports competitive.

China is still expanding production, but the closure of large southern mines after a series of accidents means import demand will be strong for many years.

Chinese companies looking to invest in Australian mines in order to supply their home market have also been lobbying for infrastructure upgrades.