Attention has been focused on the escalating trade war between China and the US but the impact of tariffs are already affecting some Aussie miners.
Chinese authorities are unofficially restricting the import of thermal coal in a bid to support its own local industry, according to a report in the Australian Financial Review.
This will likely have implications for the share prices of a range of miners including Whitehaven Coal Ltd (ASX: WHC), New Hope Corporation Limited (ASX: NHC), South32 Ltd (ASX: S32) and Yancoal Australia Ltd (ASX: YAL).
These stocks have been outperforming the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index as coal prices have been far more resilient over the past year than what the market was expecting, although it remains to be seen if the import restrictions will bring that party to an end.
While this isn't directly linked to the trade spat with the US, it could provide us with an early taste of what's in store for other listed companies that depend on China's economy.
The Chinese government is slowing custom clearance of coal imports as it quietly imposed quotas and is even turning away some vessels in recent months, noted the AFR. The move is intended to force Chinese power stations to buy local coal, which doesn't have a price advantage.
What's more worrying is that there are no signs that the unofficial quotas will end anytime soon and that will be a worry for our coal producers as China is the only major market that is growing. Aussie coal exports into Japan and South Korea are either flat or falling over the past year, while exports to China have surged 27.2%.
Experts were expecting exports to China to fall during the last winter in that country due to government mandated pollution controls, but other sources of electricity like hydro failed to produce enough power for heating.
That drove the price of coal higher as Chinese demand for imported coal surged. This has benefited our coal miners greatly as the sector is in cum-upgrade mode because analysts are using a lower assumed coal price in their valuations.
The Chinese import restriction, which essentially works like a tariff, hasn't yet impacted on the Newcastle coal price benchmark. The price of coal is 41.5% higher in US dollar terms in the 12 months to May 2018 (that's the latest publicly available data).
The Chinese government is covertly imposing the tariffs to avoid antagonising US President Donald Trump as he is trying to force open China's market by slapping extensive tariffs on goods coming from the Asian giant.
The irony is that China is publicly committing to cutting tariffs on a range of imports coming into the country as it seeks to de-escalate trade tensions with Trump.
The convoluted policies from China will make predicting the coal import restriction much harder to get right.
