Australia miners push for China tariff relief for battered coal sector
* $9 billion of Australian coal exports face tariffs
* Indonesia exempt through ASEAN free trade pact
* Pain likely to be felt in 2015 if tariffs stay in place - source (Adds Australia prime minister quote, likely defaults)
By Sonali Paul
MELBOURNE, Oct 10 (Reuters) - Australia must hold urgent talks with China to exempt coal producers from new tariffs in a free trade agreement due to be completed this year, an industry body said, following Beijing's move to reintroduce coal tariffs after nearly a decade.
China, the world's top coal importer, said on Thursday it would impose import tariffs on the commodity in its latest effort to prop up ailing domestic miners who have been hit by rising costs and plunging prices.
The tariffs would hit Australian producers hardest as its main coal export rival, Indonesia, is exempt from the tariffs through the Association of Southeast Asian Nations' free trade agreement with China. Coal is Australia's second-largest export after iron ore.
Shares (Berlin: DI6.BE - news) in Whitehaven Coal slumped as much as 9 percent on Friday, while big diversified miners BHP Billiton (NYSE: BBL - news) and Rio Tinto (Xetra: 855018 - news) both fell more than 2 percent and Glencore (Xetra: A1JAGV - news) fell 3.2 percent in Hong Kong.
China took nearly a quarter of Australia's metallurgical coal exports in the year to June 2014, buying A$5.5 billion ($4.83 billion) of the coal used in steel mills. It also took A$3.5 billion worth of thermal coal, accounting for about a fifth of Australia's exports of coal used in power stations.
"This is the kind of hiccup in our biggest and most important trading relationship that we just don't want or need," Australian Prime Minister Tony Abbott told reporters. "We'll work with the Chinese to get to the bottom of what seems to have happened overnight."
The Minerals Council of Australia said the tariff move raised the stakes in free trade talks with China and pressed the Australian government to ask Beijing to reverse the decision.
An Australian trade source confirmed a zero tariff regime for coal was part of the free trade talks and said negotiators were optimistic of a good outcome.
"Yes, we do think we will be able to achieve that," the trade official with knowledge of the talks told Reuters.
Trade Minister Andrew Robb played down the impact on miners, saying China was likely to consume 1 billion tonnes more coal over the next five years, and Australia would be a competitive source to fill that demand given the high quality of its coal.
MINERS HURT
The tariffs won't affect exporters immediately, as they have already locked in sales through December, said a person with a producer that sells about 40 percent of its coal to China.
"People are definitely going to take a hit, but we won't see the impact of that for at least three or four months, until the (new) quarterly agreements," he said, declining to be named as his company was still reviewing the tariffs' impact.
However traders said the sudden announcement may spur Chinese buyers to delay or re-negotiate pricing for fourth-quarter shipments. Buyers may even default on near-term shipments.
"For shipments that are being loaded at the moment, I think a lot of Chinese will choose to default," said a Singapore-based trader.
BHP, Glencore and Rio Tinto had no immediate comment on the Chinese tariffs. Anglo American (LSE: AAL.L - news) declined to comment.
"The full impact of this on Australia will also depend on whether exporters can switch to other markets such as Korea, Japan and India. So this is likely going to be a modest impact on Australia and not a huge one on miners," said Wood Mackenzie's Beijing-based coal analyst Rohan Kendall.
The extent of the impact will also depend on Chinese coal prices and whether top domestic miners such as Shenhua Group take the opportunity to raise prices during the winter restocking period, traders and analysts said.
China's Ministry of Finance said on Thursday import tariffs for anthracite coal and coking coal will return to 3 percent, while non-coking coal will attract a 6 percent import tariff.
The tariffs come on top of measures that China announced in September to curb pollution, banning coals for some users with high ash and sulphur content from 2015.
Some 70 percent of China's coal miners are producing at a loss due to a flood of new supply from Indonesia and Australia, which has sent local prices down to a six-year low.
Indonesian exports may be affected by the tariff move if Australian producers cut their prices to secure sales to China.
"The challenge is that it will have a direct impact on the Newcastle index on which Indonesia producers benchmark the price," said an executive at one of Indonesia's top coal firms.
(1 US dollar = 1.1392 Australian dollar) (Additional reporting by Fergus Jensen in JAKARTA, Matt Siegel in SYDNEY and Fayen Wong in SHANGHAI; Editing by Richard Pullin)