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China's ban on Australian coal could be 'indefinite' amid heightened political tensions

China's ban on Australian thermal and coking coal imports, which has left several Australian vessels stranded at Chinese ports, is likely to remain in place indefinitely amid deteriorating trade ties between the two nations, analysts said.

Chinese authorities communicated the ban verbally, suggesting the informal approach was politically motivated, commodities analysts said, though it also aligned with tightening coal import quotas and Beijing's goal to reduce consumption and carbon emissions.

Coal import quotas at some Chinese ports have now been exhausted for 2020.

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"There are several vessels carrying Australian coal waiting at Chinese ports for more than a month now as generally custom clearances have been very slow," said Deepak Kannan, a thermal coal analyst S&P Global Platts. "Indications from sources are that the number of vessels waiting at Chinese ports has increased quite a bit of late.

"Some reports have suggested that as much as 7 million tonnes of coal are on board vessels waiting along Chinese coast, up from the usual 4 to 5 million tonnes normally seen during this period of time along the coast."

State-owned utilities including Huaneng Power International, Datang International Power Generation Company, Huadian Power International and Zhejiang Electric Power were notified of the import suspension, S&P Global Platts said. One of the utilities cancelled an order for high-ash 5,500 kcal/kg NAR Australian coal.

The ban comes amid deteriorating trade relations between the two countries after Canberra called in April for an investigation into the origins of the coronavirus without first consulting Beijing.

Beijing has since imposed a large anti-dumping duty on Australian barley, banned beef exports from five abattoirs and instigated anti-dumping and subsidy investigations into cheap Australian wine in China.

China's targeting of Australian coal is not dissimilar to its strategy in other sectors, analysts said.

"China is less reliant on Australian coal imports compared with, say, iron ore, therefore we have little reason to doubt that this verbal warning could persist for an indefinite period as a potential retaliatory measure over recent political tensions," Navigate Commodities managing director Atilla Widnell said.

"It is unlikely that the Chinese customs will release any official or written directives ordering the cessation of Australian coal imports, given that Australia would have grounds for complaint under [World Trade Organization] rules."

This was the second time this year that China has banned Australia coal imports. In May, after the announcement of beef and barley sanctions, China's National Development and Reform Commission (NDRC) prohibited the purchase of Australian thermal coal to boost domestic coal prices.

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While there were strong suspicions the ban was politically motivated, China's domestic coal market had problems with supply and oscillating prices earlier this year, forcing authorities to restrict imports to control local conditions.

Australia has benefited from China's economic recovery since the lifting of its coronavirus lockdowns.

In the first half of the year, Australia was the largest exporter to China of coking coal - a key ingredient in steel production - due to an infrastructure and property building boom, with shipments from Mongolia hampered by virus restrictions.

The latest ban, however, also targets thermal coal used in electric power generation and is the larger export of the two, Widnell said.

Regardless of motivation, the control of coal imports aligns with China's targets to reduce pollution and consolidate its coal industry, said senior analyst Sean Xie at commodities analytics firm Mysteel Global.

"China's domestic supply capability is also strengthening following the commissioning of advanced capacity while closing small and inefficient mines," Xie said.

"The detailed measures on coal imports control remain adjustable based on different regional demand and quotas, and this has been a measure adopted in the past few years or so by China whenever the need arises."

This article originally appeared on the South China Morning Post (SCMP).

Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.

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