Chinese Coal Dumping Forcing Global Prices Down
Hard on the heels of the U.S. announcement of subsidies to its farmers comes more bad news for our commodity exporters as the Chinese Government revealed that it is paying $NZD 3 billion in subsidies to its coal producers who have flooded the market and forced prices down. Maree Howard reports.
Thermal coal producers are being forced to accept an 8% cut in prices after the Chinese Government announced that its subsidies on coal include free capital, the waiving of bank debt and interest repayment deductions.
There were also coal export supports to the Chinese producers of at least $US3 a tonne which included the waiving of railway construction taxes and lower port charges.
The Australian Bureau of Agriculture and Resource Economics says it believes the export subsidy total was an under-estimation of what actually occurred in China and was driven by Government policy to reduce stockpiles and increase its own domestic price of coal.
There is a suspicion of deals between China and Japan to lower the price of thermal coal although there is no firm evidence.
The new subsidies will have a further devastating effect on global coal producers following a massive 64% increase in exported coal from China last year. China is not bound by the Kyoto Protocol on climate change.
Chinese producers earlier this year placed 10 million tonnes of thermal coal on the open market which created a glut and forced prices down on the spot market.
Profit forecasts of global coal producers are now likely to face a downgrade on the basis of the lower coal prices as well as other commodities.
The subsidies have already caused considerable confusion in the market about when, or if, China will further flood the markets.