China tells its power stations not to take Newcastle thermal coal on eve of Xi Jinping's major political set-piece

This latest trade dispute between China and Australia surfaced when Asian trade journals reported "verbal" instructions from the Chinese government to stop buying Australian thermal coal - most of which arrives from Newcastle.

Such instructions are often based on the size of Chinese stockpiles, but tensions over COVID-19 and Chinese moves against Australian barley and beef quickly attracted Canberra's attention.

Deputy Prime Minister Michael McCormack told the ABC on Friday that Trade Minister Simon Birmingham and diplomats were working on the issue.

"Of course we're very concerned by it," Mr McCormack said.

"But we have a two-way relationship with China. China needs Australia as much as Australia needs China and we want to make sure that whatever we do is in a careful and considered way."

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The coal industry is playing down the impact, with Minerals Council of Australia chief executive Tania Constable saying Chinese coal imports are up 27 per cent on the first half of last year.

Most of China's thermal coal for power stations is mined domestically but it uses Australia a "swing producer" when supplies are low or when world prices are cheap.

Despite the $1.5 billion to $2 billion value of Newcastle sales to China, they account for only 15 per cent of the region's coal exports.

China is Australia's biggest customer of steel-making coking coal but most of this comes from Queensland and was not mentioned this time around.

All eyes will be on the COVID-delayed annual Chinese National People's Congress, which began in Beijing yesterday, and which may reveal signs of China's intentions on coal and broader Australian trade issues.

As well as the move on coal, Australian barley has been hit with an 80 per cent tariff, and the beef industry has been targeted via bans on red meat imports from four East Coast abattoirs.

Uncertainty also hangs over our most lucrative export business, iron ore, after China replaced "mandatory" checks of iron ore shipments with "when necessary" checks when requested by the importer.

Australian producers were initially in favour of the "streamlining" measures but analysts say they could be used to delay Australian ore at the wharf but let Brazilian cargoes straight through.

Regardless of political tensions, operations around the Port of Newcastle appeared as usual yesterday.

Both Port Waratah Coal Services and Newcastle Coal Infrastructure Group have China-bound ships in or arriving, including the Tiger Shandong berthed on Friday and the Theresa Jiangsu, Ningbo Innovation and The Mothership, due in the coming days.

Ironically, the second biggest coal exporter through Newcastle after Glencore is the Chinese-controlled Yancoal.

With high-level Chinese leaders still reportedly silent on the issue, the Australian end of the dispute has been left to read various signs and signals emanating from Chinese media and analysts.

Home Affairs Minister Peter Dutton described the Chinese tactics as "stonewalling".

"We don't think they've got a legal basis for imposing these tariffs and we want them to change their position," Mr Dutton told the Nine Network.

The Morrison government says Chinese targeting of Australian thermal coal, whether it is formal or informal, is clearly linked to the politics of the coronavirus and Australia's prominent role in calling for an independent investigation into the spread of COVID-19.

Opposition leader Anthony Albanese said the government needed to stand up for Australia's interests but it also had to explain why communications with China had broken down.

Labor frontbencher Joel Fitzgibbon said there was no denying the importance of coal and other exports to China, but there were a lot of unknowns at the moment.

"It's a bit premature to read too much into what's happening in China on the coal and iron fronts but any extension of harmful trade policy to the mining sector would be seismic for Australia," he said.

WHAT would be the political and commercial impacts of a Chinese 'go slow' on imports of Australian thermal coal?

That's the double-barrelled question that arises from another round of jousting between their government and ours in a climate of already deep and mutual mistrust over the coronavirus pandemic.

To many Australians, coal is coal, but the details matter here in the Hunter more than anywhere because almost all of the coal at the centre of the dispute comes from the Hunter, Gunnedah and Ulan coalfields, and is shipped through the Port of Newcastle.

Despite our central role in the dispute, China only accounts for about 15 per cent of Newcastle exports.

Even so, with prices at their recent lows of about $US45 a tonne ($69) for the sort of coal the Chinese usually burn in their power stations, that's more than $1.6 billion a year.

But as the Newcastle Herald reported earlier this week, China views us as a "swing" producer - someone to buy from when prices are low or domestic stockpiles are high - so China moving in and out of the market is nothing new for coal companies to deal with.

Indeed, analysts point out that the sort of import "ban" causing international headlines has been in place, more or less, for 18 months, with little fanfare.

This week's controversy appears to have begun with an analyst's note in a closely watched Chinese market website, MySteel, which quoted "market chatter" and "recent rumour that imports of Australian thermal coal will be halted nationwide".

If China does push back against Australian imports, it one of the most affected companies will be the Chinese-controlled Yancoal, which is the Hunter's second biggest producer as well as operator of two of the port's three coal loaders.

Yancoal would not comment, but only about 20 per cent of its coal goes to China.

Like the rest of the industry, its main customers are Japan, South Korea and Taiwan.

As well as Yancoal, the Port of Newcastle is 50 per cent owned by China's biggest port operator.

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