ASX coal miners will be under scrutiny today on reports that China has told steelmakers to stop buying Australian coal.
What’s going on?
According to reporting by media, such as the Australian Financial Review, China has ordered some of its state-owned steelmakers and power plants to stop buying Australian coal.
The AFR confirmed with five coal traders in China that the ban was in place. Apparently the ban was a verbal instruction.
The ban applies to both thermal coal (used for power) and coking coal (used for steelmaking).
This appears to be the latest move by China to hurt Australian commodity products. There have been other industries hurt such as Australia’s wine industry which was recently put under the Chinese microscope.
Should investors be worried?
Well, it would certainly cause disruption to ASX coal miners, but in different ways. Some coal miners have a larger percentage of Chinese sales, whilst others focus on other (Asian) countries more such as Japan.
Trade Minister Simon Birmingham said in a statement: “We are aware of these reports and have had discussions with Australia’s resources industry, who have previously faced occasional disruptions to trade flows with China. Australia will continue to highlight our standing as a reliable supplier of high grade resources that provide mutual benefits.”
On Sky News, according to News Corp, National Party Senator Matt Canavan said that only 20% of Australia’s coal is exported to China: “It’s a sizeable market but it’s not our biggest market. We actually only produce about 5% of the world’s coal, so if China decides to buy its coal from different countries, well, those other countries will be exporting less coal and we’ll fill a market map in those places.”
What to do?
Investors have been selling coal shares. The Whitehaven Coal Ltd (ASX: WHC( share price is down almost 10% since the start of the week. The New Hope Corporation Limited (ASX: NHC) share price is down around 5% since last week.
Coal is having a rough time. The long term doesn’t look compelling for coal with the shift towards renewable energy.
I think this is another sign of why western companies need to be cautious about relying on China for their earnings. New Hope doesn’t export much to China, so it could be a short term opportunity.
What commodity will be targeted next by China?
I think other ASX dividend shares would be better than directly investing in a coal miner. Something like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) could be an idea, I covered it here.
