Melbourne. Australia must hold urgent talks with China to exempt coal producers from new tariffs in a free-trade agreement due to be completed this year, an industry body said, following Beijing’s move to reintroduce coal tariffs after nearly a decade.
China, the world’s top coal importer, said on Thursday it would impose import tariffs on the commodity in its latest effort to prop up ailing domestic miners who have been hit by rising costs and plunging prices.
The tariffs would hit Australian producers hardest as its main coal export rival, Indonesia, is exempt from the tariffs through the Association of Southeast Asian Nations’ free-trade agreement with China. Coal is Australia’s second-largest export after iron ore.
Shares in Whitehaven Coal slumped as much as 9 percent on Friday, while big diversified miners BHP Billiton and Rio Tinto both fell more than 2 percent and Glencore fell 3.2 percent in Hong Kong.
China took nearly a quarter of Australia’s metallurgical coal exports in the year to June 2014, buying A$5.5 billion of the coal used in steel mills. It also took A$3.5 billion worth of thermal coal, accounting for about a fifth of Australia’s exports of coal used in power stations.
The Minerals Council of Australia said the tariff move raised the stakes in free-trade talks with China and pressed the Australian government to ask Beijing to reverse the decision.
“The Australian coal industry has sought the immediate abolition of tariffs on Australian coal exports,” council chief executive Brendan Pearson said in an e-mailed statement.
An Australian trade source confirmed a zero tariff regime for coal was part of the free-trade talks and said negotiators were optimistic of a good outcome.
“Yes, we do think we will be able to achieve that,” the trade official with knowledge of the talks told Reuters.
The tariffs won’t affect exporters in the current quarter, as they have already locked in sales through December, but the pain would hit next year if the tariffs are not fixed in a free-trade agreement, one producer said.
“People are definitely going to take a hit, but we won’t see the impact of that for at least three or four months, until the [new] quarterly agreements,” said a person with the producer that sells about 40 percent of its coal to China. He declined to be named as his company was still reviewing the tariffs’ impact.
BHP, Glencore and Rio Tinto had no immediate comment on the Chinese tariffs. Anglo American declined to comment.
“This news is more bearish than we had anticipated for thermal coal, as we had expected coal import tariffs to lift but at a lower 3 percent,” UBS analysts said in a note.
Trade Minister Andrew Robb said he did not expect the tariff announcement to hold up the free-trade talks with China, and said he expected the impact on exports would be limited.
“We have got a timeline that should take us to conclusion before the end of the year,” Robb told Australian Broadcasting Corporation radio.
China was likely to consume 1 billion metric tons more coal over the next five years, and Australia would be a competitive source to fill that demand given the high quality of its coal, he said.
China’s Ministry of Finance said on Thursday that import tariffs for anthracite coal and coking coal will return to 3 percent, while non-coking coal will attract a 6 percent import tariff.
The tariffs come on top of measures that China announced in September to curb pollution, banning the import and local sale of coal with high ash and sulfur content starting in 2015. Those limits were not imposed on coal burned in power stations.
Some 70 percent of China’s coal miners are producing at a loss due to a flood of new supply from Indonesia and Australia, which has sent local prices down to a six-year low.
While Indonesian exports will be more competitive against Australia, they won’t be immune from the impact on benchmark prices if Australian producers have to cut their prices to secure sales into China.
“The challenge is that it will have a direct impact on the Newcastle index on which Indonesia producers benchmark the price,” said an executive from one of Indonesia’s top coal firms.