Abbott  vows  to fight China coal tariffs

Abbott  vows  to fight China coal tariffs


Politics
Prime Minister Tony Abbott.

Prime Minister Tony Abbott.

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THE Abbott government will use the final weeks of FTA negotiations with China to push Beijing to drop the shock tariffs it has imposed on coal imports.

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THE Abbott government will use the final weeks of free trade agreement (FTA) negotiations with China to push Beijing to drop the shock tariffs it has imposed on coal imports.

With just one month before ­Australia hopes to seal the FTA with China, and with analysts warning the decision could cause more coal mine closures in an already struggling sector, Tony Abbott slammed the move.

"This is the kind of hiccup in our ­biggest and most important trading relationship that we just don't want or need,'' the Prime Minister said.

"We'll work with the Chinese to get to the bottom of what seems to have happened.''

Mr Abbott said the surprise decision made it all the more important to secure an FTA to avoid similar future ambushes. He spoke with Trade ­Minister Andrew Robb three days ago and there was no indication this was coming. Mr Robb had assured him ­everything was on track.

International trade expert Alan Oxley said if the Chinese refused to relent, Australia should use the tariff decision as leverage to forge a better deal for other sectors in the FTA, such as agriculture, where the Chinese were playing hard-ball.

"It helps Robb stare at them more vigorously over agriculture,'' he said.

The imposition of a 3 per cent tariff on coking coal and 6 per cent on soft coal from October 15 comes amid sluggish demand for coal and oversupply in the local Chinese market, which have pushed prices down to six-year lows.

Australia believes the Chinese are responding to pressure from the local coal industry, which is hurting from the plunge in prices.

Matthew Trivett, an analyst at broking firm Patersons, said the Australian coal sector was ill-placed to handle the "unexpected" tariff. Between 20 per cent and 30 per cent of producers are estimated to already be operating at a loss. "This will have large ramifications in the seaborne market and ... is likely to prompt more rationalisation on the supply side," Mr Trivett said.

"You would expect some more mines in Australia to close as a result of this, or at least reconsider their ­curr­ent cost position."

An estimated 12,500 jobs have been cut from the Australian coal sector over the past two years on the back of depressed prices for both thermal and coking coal.

NSW Premier Mike Baird said the tariffs would exacerbate the impact on jobs and revenue in his state already being caused by a depressed coal sector.

Coal producers are currently dealing with prices near six-year lows, with the price for thermal coal down 22 per cent this past year to around $65 per tonne.

The steep and sustained price decline has forced some mines to close their doors, but many more to take a sharp axe to their workforces in a drive to dramatically cut costs.

Around 25 per cent of Australia's coal exports go to China, which stacks up to about 100 million tonnes worth $9.3 billion each year, according to the Bureau of Resources and Energy Economics.

Mr Trivett said thermal coal exporters will be hit the hardest by the tariff as they are the most marginal in the current conditions and are being hit with the largest impost.

"I think what this will mean is that a lot of Australian coal bound for China will be displaced for other ­count­ries," he said.

"If it does go to China, it will take a price hit at the percentage of the tariff. For thermal coal producers it would be between $3 and $4 per tonne and, if you are a marginal producer as it is, this would be a very significant loss."

Australian coal companies were quiet on Friday, with many deferring commenting until they better ­un­derstood the impact of the tariffs.

Yancoal spokesman James Rickards said was too early to suggest the move would drive further consolidation within the Australian market, but "the re-introduction of import taxes adds to existing operating cost pressures for Australian exporters".

Wood Mackenzie's senior coal analyst, Rory Simington, said there had been "a bit of talk" on whether this move was likely, but that China's coal market had been moving towards liberalisation, so a reintroduction of tariffs was "surprising in that sense".

Mr Simington said the decision may see Australian coal producers seek to export more to other markets such as Japan, South Korea and Taiwan, ­potentially increasing competition in those markets.

Labor trade spokesperson Penny Wong hinted that Labor would not ­support an FTA which locked in the coal tariffs.

"Labor supports negotiations to secure a high-quality free trade agreement with China which gives ­Australian exporters real benefits, rather than a sub-standard deal designed to give Mr Abbott a political trophy,'' she said.

Treasurer Joe Hockey, who was in Washington DC for economic talks, raised his concerns with his Chinese counterpart, Lou Jiwei.

Ahead of a dinner meeting of G20 finance ministers, Mr Hockey said he was "surprised at the decision'', which has complicated FTA negotiations.

"If someone undertakes unilateral action that causes harm to us then we've got a right to respond,'' he said.

Mr Hockey was not threatening retaliatory trade sanctions.

The story Abbott  vows  to fight China coal tariffs first appeared on Farm Online.

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