BEIJING (Reuters) - Customs at China’s northern port of Dalian has banned imports of Australian coal and will cap overall coal imports from all sources to the end of 2019 at 12 million tonnes, an official at Dalian Port Group told Reuters on Thursday.

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

The indefinite ban on imports from top supplier Australia, effective since the start of February, comes as major ports elsewhere in China prolong clearing times for Australian coal to at least 40 days.

Australia’s ties with China have deteriorated since 2017, when Canberra accused China of meddling in its domestic affairs. Tensions rose again last month after Australia rescinded the visa of a prominent Chinese businessman, just months after barring Chinese telecoms giant Huawei Technologies from supplying equipment to its 5G broadband network.

Coal is Australia’s biggest export earner and the Australian dollar tumbled more than 1 percent to as low as $0.7086 on fears the Dalian ban would hurt its already slowing economy.

Asked if the ban was related to bilateral tensions, Geng Shuang, a spokesman at China’s foreign ministry, told reporters on Thursday that customs were inspecting and testing coal imports for safety and quality.

“The goals are to better safeguard the legal rights and interests of Chinese importers and to protect the environment,” Geng said, adding that the move was “completely normal”.

Imports through Dalian comprise only 1.8 percent of Australia’s total coal exports, but if the reported ban reflects a more significant deterioration in the trade relationship between Australia and China, then it could have a broader impact, said Ivan Colhoun, chief economist of markets at National Australia Bank, in a note on Thursday.

Five harbors overseen by Dalian customs - Dalian, Bayuquan, Panjin, Dandong and Beiliang - will not allow Australian coal to clear through customs, said the Dalian port official. Coal imports from Russia and Indonesia will not be affected.

“I’m aware of unconfirmed and unsourced media reports and have asked our Ambassador in Beijing to urgently clarify their veracity,” said Australia’s Minister for Trade Simon Birmingham.

“We continue to engage closely with industry on matters of market access ... China is a valued partner of Australia and we trust that our free trade agreement commitments to each other will continue to be honored.”

Birmingham also said that Australia’s exports of coal to China in the fourth quarter of 2018 were higher in volume and value than in the same period in 2017.

The Dalian ports handled about 14 million tonnes of coal last year, half of which was from Australia, said Gu Meng, an analyst at Orient Futures.

The Dalian official declined to be named due to the sensitivity of the matter. Neither Dalian customs nor the national General Administration of Customs immediately responded to a request for comment.

The Dalian official said he was not given a reason for the ban on Australian imports.

Australia’s New Hope Coal declined to comment. Yancoal said it will not be impacted by the Dalian ban as it does not ship to the port. Glencore directed queries to the Minerals Council of Australia, which declined to comment.

COAL RESTRICTIONS

Beijing has been trying to restrict imports of coal more generally to support domestic prices.

A Beijing-based coal trader said Dalian had cleared about 6 million tonnes of coal in January that had been delayed since late 2018 as China slowed customs clearance to curb imports.

The delayed cargoes would not be included in the 12 million tonnes under the 2019 quota, the trader said, citing customs information.

Dalian handles both thermal and coking coal imports but the clamp down is expected to have a bigger impact on coking coal, used in steelmaking, rather than on thermal coal, used to generate electricity.

Dalian customs accounted for 7 percent of China’s total coal imports in 2018, according to a report from consultancy Wood Mackenzie. A possible China-wide ban could cause spiking metallurgical coal prices and decouple seaborne coal prices from domestic prices, according to Robin Griffin, Wood Mackenzie’s research director.

Spot Australian coking coal at the northern Chinese port of Jingtang is 200 yuan ($29.85) cheaper per tonne than domestic prices, according to data tracked by Orient Futures. The price difference for thermal coal is about the same.

“It is hard to find a replacement for Australian coking coal since its sulfur content is very low,” said a purchasing manager at a large plant in Hebei province that produces coke, used in the steelmaking process, from coking coal.

“Current inventory at ports should be sufficient to support usage for one or two months, but it could be a problem in the long term, especially if other ports also tighten imports,” he said, declining to be named due to company policy.

The most-active coking coal contract for May delivery rose more than 2 percent during morning trade on Thursday.

“(The restriction) will further squeeze profit margins at steel mills after Vale’s accident has already driven up iron ore prices,” said Gu at Orient Futures.

China bought 28.26 million tonnes of coking coal from Australia in 2018, accounting for 43.5 percent of the country’s total imports of the fuel, customs data showed.

($1 = 6.6998 yuan)