In June 2020, Malta-built bulk carrier vessel the Topas left the Queensland port of Hay Point, bound for China with a cargo of 90,000 tons of coal. The journey was not expected to be particularly difficult, as such coal shipments between Australia and China have formed a cornerstone of both countries’ economies and industries. Moreover, they have created an industry worth $14bn a year, as China has historically looked to its neighbour to satisfy its massive appetite for coal.
However, the Topas only unloaded its cargo in March this year, after a wait of 269 days in limbo floating off the Chinese coast, as growing political tensions between the two massive coal traders all but put a stop to Chinese imports of Australian coal.
With China said to be angry at Australia for calling for an international investigation into the origin of the Covid-19 pandemic, it implemented a de facto ban on imports of Australian coal, leaving scores of ships stranded and tens of thousands of tons of coal unsold.
The tensions have spilled out into a full-blown humanitarian crisis and only now is China softening its stance, letting ships deposit coal on its shores so their crews can return home. Yet Chinese policy remains unchanged, with Australian coal still black-listed as China looks to both reduce its reliance on coal for its energy needs and find alternative sources of coal for its still high demand.
The incident could prove to be an explosive end to one of the most profitable international trade agreements in history, and herald a new beginning for both Chinese energy and Australian coal.
A growing humanitarian crisis
The growing tensions first began to attract international attention due to the human cost of the standoff, with more than 70 vessels, with a combined crew of 1,400 people, left stranded offshore. Many of the crews have been left in limbo, and their stranding has highlighted the human impacts of the economic and political fractures between Australia and China.
The plight of the crews has been made more complicated by a number of external factors, not least the Covid-19 pandemic, the trigger point for the crisis in the first place.
Last July, the International Transport Workers Federation claimed that 300,000 crew members around the world had not been allowed to leave their vessels and return home due to concerns that they had contracted Covid-19 in the closed environment of their ships. Ports have been understandably hesitant to open themselves up to new arrivals who could be carrying the virus.
The second external influence is the origin of many of the crews in question, with Roderick Campbell, research director at thinktank The Australian Institute, noting that many of the crew are neither Australian nor Chinese citizens, which reduces their political power amid the Australia-China tensions.
“My understanding is that it’s been very tough on the crew, but I only know what I’ve read in the media,” Campbell says. “But as far as I know, they aren’t Australian nationals. Most ship crews are Filipinos, Indians, and Russians, groups with little clout in Australia.”
He added that the Maritime Union of Australia has tried to lobby for the safe return of the crew to ports around the world, but that the Australian Government is “very hostile” to the union’s work, diminishing its impact.
These factors have created a situation where many of the affected crew do not have obvious representatives in either the Chinese or Australian Governments, and those who have taken up their cause have not been listened to, accelerating the crisis from an economic one to a humanitarian one.
The two countries have been able to tackle these human costs in recent months, with stranded ships being redirected to Japan and South Korea. Nine vessels, including the Topas, which have been stranded for over 200 days, have been allowed to unload their cargo. However, these relief efforts will do little to address the seismic economic shift that could come from this incident.
Economic and industrial impacts
Without an obvious end in sight, the spiralling tensions could have a profound impact on the economies and industries of both countries. Campbell describes China as “the 500-pound gorilla of the coal market” due to its massive demand for the energy source, a demand that it has historically looked to foreign imports to meet. In 2019, China imported 233 million tons of coal from overseas, and Chinese coal imports peaked at a massive 327 million tons in 2013.
“A few percentage points change in Chinese coal demand has a huge impact on the international trade of coal in the Asian region,” says Campbell, noting that coal is often traded regionally as it is a physically heavy and bulky commodity. “In the first decade of the millennium, China began to import coal; this sent prices for Australian coal skyrocketing and started a scramble to develop new mines. Even if the coal wasn’t sold to China, China is still the driving force in coal prices/markets.”
However, Campbell also pointed out that since the peak of coal imports in 2013, China has looked to reduce its reliance on coal power. A domestic push for better air quality across the country, and a sector restructuring in 2016, helped lower demand for foreign coal imports as quickly as it had risen in the previous decade. This left many Australian coal miners in particular high and dry, with vast mines in operation but their primary trade partner no longer interested in buying.
“Australian mines that were in production prior to 2013 certainly cashed in and made windfall profits,” Campbell says. “Since then however, while there have been some big deals, the Australian coal and fossil fuel sector overall has underperformed financially.
“But average Australians have felt little benefit,” he continues, highlighting how this lucrative trade has actually yielded few benefits for Australian workers. “The industry is abundantly foreign owned. The coal industry employs around 50,000 people in a workforce of 12 million, a fraction of one percent. Even in the Hunter Valley, home of the Australian coal industry, the industry is just 5% of employment.
“In short, the Australian coal industry is a big polluter, a big talker, but contributes very little to Australians.”
Signs of change for both countries
It is reasonable, therefore, to interpret the latest political tensions as the logical outcome of a lucrative, yet unsustainable trade relationship, as opposed to a flashpoint that has emerged from nowhere to derail an otherwise profitable and productive industry. Indeed, Campbell notes that the political tensions are unwelcome, but ultimately unsurprising.
“I don’t think the coal ban has had a big impact on the already terrible relations,” he explained. “The coal industry seems to have found other buyers. I expected there to be more of a kerfuffle about it, but the industry is very politically savvy. They realise that making a big deal out of something they can’t change just makes them, and their supporters in government, look weak, so have stayed pretty quiet and got on with finding other markets.”
The Australian coal sector has therefore become more diverse over the course of the crisis, with a number of other countries emerging as attractive destinations for Australian coal producers.
In December 2020, as monthly Australian metallurgical coal exports to China collapsed to 0.2 million tons, monthly exports to India climbed to a record high of 5.6 million tons. Similarly, total exports to Brazil reached seven million tons per annum, as Australia looks further afield for demand to meet its vast supply of coal.
Similarly, China has redoubled its efforts to produce coal domestically to account for this shortfall in imported coal. Domestic production has increased from 1.69 tonnes of oil equivalent (toe) in 2016 to 1.83toe by the end of 2018, according to CEIC Data, and is the latest example of growth in domestically produced coal, which has been increasing constantly since the 1980s.
There is also an environmental element to these changes, with China eager to invest in renewable power to diversify its energy mix. While coal continues to dominate Chinese energy, the last decade has seen China make a number of strides in renewable power.
The International Energy Association reported that, between 2008 and 2018, electricity produced by Chinese wind and solar power jumped from 9,806 kilotons of oil equivalent (ktoe) to 81,120ktoe, while energy from hydropower increased from 50,317ktoe 103,113ktoe over the same period.
“The big deal in China is air quality,” explains Campbell. “Cleaning up big cities’ air quality is really important politically there. That drove the initial move away from coal and climate concerns and cheap renewables are driving this further. China has already moved into renewable energy in a big way.”