China has banned imports of Australian coal, shocking the AU Dollar

Mae Love
February 22, 2019

The United States is seeking to secure a pledge from China it will not devalue its yuan as part of an agreement meant to end the countries' trade war, Bloomberg reported on Tuesday.

The Australian dollar was in the spotlight, sliding more than one percent after customs at China's northern Dalian port banned imports of Australian coal and said it will cap overall coal imports for 2019.

Australian embassy officials are seeking urgent clarification about reports of a ban on Australian coal imports at five ports in China's north-east, amid fears the move could be politically-motivated.

"For now, Australian coal can clear customs", he said, declining to be named because of company policy. The body reportedly won't allow Australian coal to clear through customs, while imports of coal from Russian Federation and Indonesia are not going to be affected, according to the official.

Macquarie said that, with numerous world's largest producers' main operations based in Australia, an extended ban would have most impact on mid-range metallurgical coal and lower-grade thermal coal.

Lowe, echoing analysts, said it was also important to note that the current amount of coal reportedly blocked by Dalian was small.

The affected ports also comprise only 1.8% of Australian coal exports.

According to the Sydney Morning Herald, trade talks between the Australian and Chinese government over coal imports have already been taking place concerning metallurgical coal and coking coal.

The Australian dollar has been hit hard by the news and was on Friday morning trading down nearly three-quarters of a percentage point at US70.93¢ since the news broke on Thursday.

Of the 14 million tonnes of coal the ports handled previous year, approximately half came from Australia.

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Australian Trade Minister Simon Birmingham said the government was aware of the problem, stressing that the country's ambassador in Beijing was asked to urgently clarify the situation.

Australia was China's primary supplier of coal in 2018, providing over half of the total 14 million tons imported through the ports managed by the Dalian Ports Group, which include ports of Dalian, Bayuquan, Panjin, Dandong and Beiliang.

He said he would work with the coal industry on matters of market access.

Mr Frydenberg said: "We can see these occasional interruptions to the smooth flow but that doesn't necessarily translate to some of the consequences that aspects of the media might seek to leap to". "Apparently, they do this all the time at various ports", says Rankin Treasury Advisory principle Derek Rankin. Prices of thermal coal are approximately the same.

"I don't believe for one moment this is linked to some of the higher level issues of relationships between China and the rest of the world, and including with us".

"It is hard to find a replacement for Australian coking coal since its sulphur content is very low", said a purchasing manager at a large coke plant in Hebei province.

NAB chief market economist Ivan Colhoun said while details remain "somewhat hazy", the initial drop in Australian dollar may be an over-reaction.

'If it were to be the sign of a deterioration in the underlying political relationship between Australia and China that would be much more concerning'.

Industry experts have noted recently that China appeared to be delaying customs clearances for Australian coking coal used in steel-making, but a report late yesterday that ports in the northern city of Dalian had banned the shipments sent the Aussie dollar plunging.

In the currency market, the offshore Chinese yuan firmed to its strongest level since July a year ago on hopes of further progress in the Sino-U.S. trade talks, and was last trading at 6.7076 per dollar. "China is a valued partner of Australia and we trust that our free trade agreement commitments to each other will continue to be honored", he said, as quoted by the agency.

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