China singling out Australian coal is a sign of their influence on

China’s energy markets and global markets, especially for LNG and pipeline gas, have become increasingly integrated over the last five years.

For gas producers this has been a boon – a major new customer with strong growth while European demand has broadly been declining to flat over the period. It also means that what happens in China’s domestic energy markets does not often stay in China’s energy markets but is propagated throughout the world. When China has shortages or surpluses of gas, coal or electricity they spread rapidly across the world as China is a major and volatile importer of these commodities.

By mid to late 2020, coal was looking to be in serious trouble. Chinese inventories were high and shipping data showed that much of the supply of coal to southern China was now coming from Northern China ports leaving little room for thermal coal imports and not just from Australia which was singled out for special treatment. Then something strange happened.

From early 2021 China started to draw its coal inventories down hard and deliveries from northern ports to southern ports started to drop. This might not be a big deal, but China’s power demand was flying at the time with electricity consumption up ~14% year-over-year in April-June and steel output up 21%. Coal stocks started to decline rapidly.

So demand was very strong but supply fell behind sharply both for domestic production and imports. China’s coal production is heavily concentrated in a few provinces.

Over this period Inner Mongolia and Shaanxi output was poor – especially in the context of surging electricity consumption driven by industrial output of metals.

Imports were also weak from two major suppliers: Australia for political reasons and Mongolia ostensibly for Covid reasons.

There is however another possible reason. During this period there was something of an anticorruption crackdown in Inner Mongolia which borders Mongolia.