UBS research released on Thursday said Australian coal is being held for about 40 days at Chinese ports, a significant increase from between five and seven days earlier in the year.
But UBS stressed there was no ban on Australian coal. It is unclear whether the restrictions are motivated by political or economic factors.
“Despite recent import restriction threats from China on Australian coal, we believe coal is still able to get into China, albeit somewhat delayed,” UBS analyst Glyn Lawcock said at a roundtable following the report’s release on Thursday.
“Our assumption is it will ease as we head into the northern hemisphere summer.
“When it comes to coal, it’s all about quotas, [the current Chinese coal restrictions] feels like it’s just managing to that quota of around 270 million tonnes [of foreign coal],” he said.
“This is more about protecting [Chinese] domestic prices in our view than it is about restricting any one country’s access to China. We don’t see China wanting the price to come down and believe price protection is one of the reasons it is restricting imports.”
He said Australian miners such as Whitehaven Coal would be hit the hardest.
“How these restrictions play out will be a key driver of the coal price in 2019,” Mr Lawcock said.
UBS forecasts an average thermal coal spot price of $US95 a tonne in 2019, expecting it to slip down to $US86 a tonne by 2021.
UBS analyst Daniel Morgan said Chinese import restrictions and growing shareholder activism is now pushing investors away from thermal coal.
“The public equity market may not be the right place for thermal coal anymore, private equity may be the place now,” he said.
“Various activists are trying to turn coal into a pariah industry like tobacco, although people haven’t stopped investing in tobacco.”
He said funds are turning away from coal as it was easier than having to explain the investment to shareholders who may be opposed, rather than rejecting the fundamentals of investing in coal.
“The valuation for thermal coal, in the end, is that it is not going to hurt your performance [as a fund] if you ignore it.”
The Investor Group on Climate Change, which represents $2 trillion in funds under management, on Thursday released a report calling for a phasing out of thermal coal investments.
Covering energy and policy at Fairfax Media.