The world’s busiest coal port used to be Newcastle, England, and then it was Newcastle, Australia. Now it’s Qinhuangdao, 300 kilometres east of Beijing on the Bohai Sea.

The amount of coal shipped each week out of the Bohai Sea is almost equal to the rest of the world’s seaborne coal trade. Most of those ships skirt the Chinese coast to feed power generators around Shanghai and southern China.

A small fraction will be exported to Korea and Japan – where it will compete with coal from Australia. The price of Newcastle coal will hinge on the flow of those Chinese exports.

And the volume and price of Chinese exports will depend on whether China’s coal consumption is marginally more or less than the 2.7 billion tonnes of coal – two-fifths of global supply – that the country is likely to produce this year.

Ten days ago, the benchmark Qinhuangdao coal price stood at 880 yuan a tonne, or $US129 ($205) a tonne, which was down a bit from the midyear peak but still $US4 a tonne higher than the Australia-Japan contract price.

At first glance that seems like unambiguous good news for Australia at a time when the price of every other important commodity is tumbling. Coal is by far Australia’s most important export, on track to reap $US48 billion this financial year at current prices and volumes. That’s one-sixth of all Australian export revenue, one half more than iron ore exports and much more than either manufacturing or farm exports.

So far, coal prices have seemed sticky on the way down. But nothing in China’s coal industry is as it seems.

Half of China’s thermal (electricity-generating) coal is deliberately discounted to subsidise electricity producers (who are then forced to subsidise various consumers). The most widely quoted market price is the Datong Qinhuangdao coal index, but it is a made-up number.

Coal traders and analysts say they are not aware of any sales being made at anywhere near the recently quoted price. Some suggest the local port authority is reluctant to show coal prices are collapsing, lest people get the impression that China’s coal-powered economy is in trouble.

On Thursday Qinhuangdao officials bent towards reality and dropped the price index to 790 yuan. The word is that it will be down to a little over 700 this week.

Officials are knocking 100 yuan a week off the index price, but still they can’t keep pace with how fast spot market prices are falling.

“There was a report last week of a trader offering 500-600 yuan at Guangzhou, but he couldn’t sell it,” said Mark Dougan, who heads the Beijing office of the coal analyst Barlow Jonker, part of the Wood Mackenzie group.

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