Coal trading has become too risky, a trader remarked on Thursday February 21 amid news that customs authorities in Dalian, a major city in northeastern China, had slashed the yearly coal import quota for ports under their jurisdiction by 25%.
His comments followed a report a day earlier by the Reuters news agency, citing an unnamed port official, that the northern Chinese port of Dalian had banned imports of Australian coal.
A Chinese Foreign Ministry spokesman, Geng Shuang, said the port restriction was "normal practice" and the restriction was to protect the importer's right and the environment.
In Australia, the S&P/ASX 200 added 0.46% to 6,167.30, although coal miners were on the back foot after a report overnight that China was banning the import of Australia coal in its port of Dalian.
Five harbours overseen by Dalian customs - Dalian, Bayuquan, Panjin, Dandong and Beiliang - will not allow Australian coal to clear through customs, said the official, however coal imports from Russian Federation and Indonesia will not be affected.
"The two-way trading relationship between Australia and China is important and strong, and it is in Australia's long-term national interests", he said.
The Dalian ports handled ~14M metric tons of coal a year ago, half from Australia, says Gu Meng, an analyst at Orient Futures. Shipments were now taking more than 40 days to clear customs instead of around 20 previously.
Overnight, the had rallied around 0.5% against the dollar to 6.7227 after Bloomberg reported that the USA would use the ongoing trade talks to seek a commitment from China not to devalue it.
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"Use of more high sulfur (1.8% total sulfur) premium HCCs such as Luilin #9, blended with Mongolian second tier HCCs such as the #3 product to produce a tier 1 coke". He said Beijing was applying its rules equally to all countries and wasn't discriminating against Australia.
"It's punishment against states that resist China's pressure", said Dr Malcolm Davis, from the Australian Strategic Policy Institute.
"We still expect China stocks to outperform on trade hopes and domestic stimulus", Credit Suisse strategists wrote in a daily note to clients. He didn't say whether China was targeting Australia specifically. China is expected to agree to buy more U.S. goods as part of a deal being brokered by negotiators in Washington this week.
Prime Minister Scott Morrison denied the import restriction showed a diplomatic rift between Canberra and Beijing. Australia's competitors in the metallurgical coal trade might see greater opportunities into China, but Canada and the U.S. are already subject to some quality and tariff-related restrictions into China, limiting their potential upside.
"This is not the first time that on occasion local ports make decisions about these matters", he told reporters in Auckland, where he is meeting with his New Zealand counterpart Jacinda Ardern.
Dr Lowe said the Chinese coal industry was not particularly profitable and there could also be some changes for environmental reasons.
"I wouldn't jump to conclusions".
That said, any uncertainties that emerge over the import policy of China - the world's biggest buyer of coking coal - will certainly keep market participants on the edge of their seats. We have to wait and see.