Australia Downplays Report Chinese Port Has Banned Its Coal

Feb 21 2019, 8:59 PMFeb 22 2019, 12:01 AMFebruary 21 2019, 8:59 PMFebruary 22 2019, 12:01 AM

(Bloomberg) -- Australia denied reports that a major port in northern China has banned its coal imports amid uncertainty whether Beijing is flexing its muscle as punishment for perceived geopolitical slights or reacting to domestic economic pressures.

A day after Reuters said Dalian Port Group has imposed an indefinite ban on Australian coal and will cap overall coal imports for 2019 through its harbors at 12 million tonnes, Treasurer Josh Frydenberg cautioned against “jumping to conclusions.”

China Port Reportedly Bans Australian Coal Amid Huawei Tensions

Frydenberg denied in an interview with Australian Broadcasting Corp. radio Friday that China’s reported move was retribution for Australia last year banning Chinese telecommunications giant Huawei Technologies Co. from its 5G network on security concerns. China has said the concerns are unreasonable and has warned other countries of unspecified consequences if they follow suit in blocking Huawei equipment.

“It may well turn out to be that it’s being driven by concerns about the environment in China and the profitability” of its coal industry, Reserve Bank of Australia Governor Philip Lowe told a parliamentary committee Friday.

The Australian dollar fell as much as 1.3 percent Thursday on the report of the ban; it pared losses after Frydenberg’s comments to trade around 71 U.S. cents. Coal mining stocks took a hit on the Sydney exchange Friday, with Whitehaven Coal down as much as 5 percent. BHP Group was down only marginally after losing 2 percent in London Thursday.

“We don’t think a Dalian Customs ban or a China‑wide ban on Australian coal will be sustainable beyond a few weeks or months,” Vivek Dhar, commodity strategist at Commonwealth Bank of Australia, said in a note. “Not only are Chinese steel mill margins weak, but iron ore prices are surging exactly when construction season is set to begin following the Chinese New Year period.”

The high quality of Australian coal meant that “a policy to restrict or ban Australian coal imports ultimately compromises China’s environmental protection agenda,” he said.

Motives Unclear

While China has a history of using trade as leverage to help it achieve its foreign policy goals, it also regularly tweaks import limits to steer its coal market, the world’s largest, as the country tries to ease its reliance on the fuel. With Beijing declining to confirm whether it is targeting Australia specifically even as some shipments have been delayed by customs as long as 40 days, the reasons behind the slowdown are unclear.

“It is hard to know the exact Chinese motives in this case,” said Zhang Baohui, director of the Center for Asian Pacific Studies at Lingnan University in Hong Kong. “If the speculation is correct, then it shows the stakes for the 5G race are now higher for all parties. The U.S. is relentlessly pushing its allies to ban Huawei and China is starting to push back.”

While Dalian only takes about 2 percent of Australia’s coal exports, a ban would mark a deterioration in often strained relations between the key trading partners.

China has been seeking to counter resistance in several nations to using Huawei in 5G networks. Its ambassador to Canada this week warned that excluding the company will have repercussions. Meanwhile in New Zealand, which has also barred Huawei, the government this week sought to downplay concerns that China is now turning a cold shoulder.

Australia also recently revoked the permanent residency of a Chinese billionaire over concerns that he’s an agent of influence, and is pressing the Chinese for access to Australian citizens and permanent residents held in prison or trapped in Xinjiang.

“They are putting pressure on us, along with New Zealand, because of our stances on Huawei,” said Malcolm Davis, a senior analyst at the Australian Strategic Policy Institute in Canberra. “They could do more if they wanted to, but if they did they would shoot themselves in the foot because if they stop buying our raw materials, they will suffer as well.”

Australia Weighs the Cost of Resisting China’s Meddling

The mining community is divided on what’s behind China’s curbs, which are usually targeted at thermal coal for its power plants but this year are mainly aimed at coking coal used in steel-making. Australia is the world’s largest exporter of this variety.

Anglo American Plc, a major producer of Australian coal, on Thursday said it’s not seeing any problems with its shipments into China, while mining giant BHP Group sees the delays as a result of China seeking to balance consumption of domestic and imported coal.

“It’s not particularly Australian in its nature,” Andrew Mackenzie, chief of the Melbourne-based company, said about China’s coal import slowdown on Tuesday after the miner posted earnings. “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.”

Still, on Wednesday, the head of Glencore Plc said the mining giant sees politics behind China’s move to delay customs clearances of Australian coal imports and is awaiting a resolution to the “diplomatic dispute.”

“There’s a bit of a political issue” related to delays processing Australian coal cargoes, Glencore’s Chief Executive Officer Ivan Glasenberg told analysts Wednesday after the release of the company’s financial results. “We’re waiting and monitoring to see what big effect it has, what effect it’s going to have, when they are going to resolve this diplomatic dispute.”

Australia is the world’s most China-dependent developed economy yet has an enduring security relationship with the U.S. and often finds itself walking a diplomatic tightrope between the two. In recent months, Prime Minister Scott Morrison’s government agreed to work with the U.S. on a naval base in Papua New Guinea, a move seen as a direct counter to China’s growing influence in the South Pacific.

Australian beef and wine exporters last year blamed politics when their products were held up at Chinese ports, after then-Prime Minister Malcolm Turnbull implicitly criticized Chinese meddling in Australian politics and universities.

Australia has asked its ambassador in Beijing to clarify the situation. Asked directly about the report on Thursday, foreign ministry spokesman Geng Shuang told reporters in Beijing that China examines imported coal to protect the environment. He didn’t say whether China was targeting Australia specifically.

“Our ambassador will be making inquiries,” Frydenberg said. “But the two-way trading relationship works strongly in Australia’s favor. The coal industry in terms of its exports is worth over A$60 billion ($37.5 billion) and creates over 50,000 jobs.”