February 22, 2019 / 4:14 AM / 7 months ago

Breakingviews - China coal curbs blow diplomatic smog Down Under

A reclaimer places coal in stockpiles at the coal port in Newcastle, Australia, June 6, 2012. REUTERS/Daniel Munoz/File Photo

HONG KONG (Reuters Breakingviews) - China’s curbs on Australian coal are sending some smog into the southern hemisphere. At least one big port appears to have barred imports of the stuff from Down Under, and customs delays have been lengthening. Beijing has used such tactics in the past to reduce stockpiles and support domestic prices. But denting a top export earner is likely to be interpreted as a diplomatic message too, when ties with Canberra are already strained.

Reuters reported on Thursday that officials at the northern port of Dalian have halted Australian coal imports and imposed a quota on arrivals from all sources. At other ports, the clearance process is already taking 40 days or more, twice the usual time frame, prompting traders to freeze orders from their biggest outside supplier of the fuel. Plenty remains unclear. Some instructions have been transmitted only orally. Australia has said there is no ban, while China’s foreign ministry says it is carrying out tests, for environmental reasons.

Part of the explanation lies with China’s domestic coal industry. Officials have in the past cut back when they feel supplies at home are abundant and prices too cheap. Last year, for instance, the state planner told some large utilities to slow purchases in order to keep imports at or below 2017 levels. But that is easier to do in thermal coal, used for power plants, where there are more alternative sources, than for steelmaking coal, at heart of the current struggle. There, Australia is a key exporter. That means the ban, official or otherwise, could well be short-lived.

Either way, the measures will already have sent shock waves through Canberra. Ties with China have been under strain – despite a rapprochement, Australia effectively banned Chinese telecoms supplier Huawei from building 5G networks and has taken a hard line on investment, among other things. Beijing, of course, is hardly averse to using trade, tourism or other soft weapons to achieve foreign policy aims.

Plus, even temporary curbs can inflict real pain. Australia’s exports to China make up almost 8 percent of GDP, according to Capital Economics. Much of that was metallurgical coal. Fears of a lasting and damaging spat have already hit the currency. That suggests it may be time for investors and executives to sit up and pay attention.

Breakingviews

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