South Africa’s sizable coal exports to China have abruptly dropped to virtually nothing since March this year, reflecting how quickly the world’s major commodity importer can affect the fortunes of trading partners like South Africa.
The recent deterioration of South Africa’s trade balance stems almost entirely from falling prices for the bulk commodities that are mostly exported to China.
The latest trade data from the department of trade and industry shows that China’s imports of South African coal has dried up completely – an apparent effect of China’s economic slowdown predating the new protectionist measures against coal imports, which China announced this week.
In the first eight months of this year, China imported 3.3?million tons of South African coal.
That is less than half of the 7.5?million tons it had imported in the same period last year.
That, however, obscures the dramatic drop – from April onwards, there have been almost no coal exports to China at all.
Coal is the only bulk mineral where China was not South Africa’s major customer, although its role had been rapidly growing since 2009.
China’s coal imports from South Africa went from basically nil to 17% of all coal exports between 2009 and 2011.
Overall, South African exports of coal have not dropped much, and basically all the coal that went to China seemingly found buyers in India.
Usually, South Africa’s exports of coal, iron and manganese more or less cover the country’s oil imports, largely from Saudi Arabia, Nigeria and Angola.
In August, they fell well short, dropping from July’s R20.9?billion to R15.9?billion.
The culprit is iron ore. South Africa has been receiving on average $107 a ton this year up to the end of August, compared with $131 a ton last year.
Manganese ore has been fetching about $140 a ton compared to $166 last year.
The going price for thermal coal has dropped from $76 to $66.
All these commodities are largely sold to China.
The weak rand has significantly cushioned the blow after exports of the bulk commodities to China fell by double digits in dollar terms this year.
China has been cutting back its coal imports generally and South Africa happens to be one of the most geographically remote among the country’s top suppliers.
The country this week reintroduced the import tariffs of 3% to 6% on different qualities of coal it had scrapped in 2007. This is to protect China’s domestic coal companies and follows a new ban on particularly low qualities of coal announced last month as part of China’s attempt to curb the pollution in its major cities.
The trade in bulk commodities between South Africa and China might be significant in terms of our trade balance, but it is relatively tiny in the context of China’s imports of these commodities overall.
The country that has the most to lose from the falling prices and new Chinese restrictions is Australia, which has become virtually a commodity supplying colony of China over the past decade. Its exports largely consist of iron ore and coal shipped to Chinese steel mills.
Over the past few years, Chinese coal imports from Australia have surged from 33?million tons to almost 90?million tons.
Both the new tariff and the restrictions on dirty coal are essentially aimed at removing this Australian coal from the Chinese market.
This will benefit Indonesia, which is presently China’s second largest coal supplier. The country is and immune to the new tariffs because it is a member of the Asean trade bloc, which has a free trade agreement with China.
US AND THEM
China has gone from being an insignificant trade partner in the 1990s to currently being responsible for more than 12% of South African exports.
The trade relationship is, however, heavily concentrated around minerals, and not the old South African staples of gold and platinum – but it is rather focused on the industrial bulk commodities iron ore, coal, manganese and chrome ore.
These are precisely the parts of the mining sector in South Africa that have shown consistent growth to counter the rapid decline of gold mining over the past decade.
Last year, China imported 69% of South Africa’s iron ore exports.
It bought 54% of manganese ore exports and 76% of chrome ore exports.
