Scott Morrison is demanding clarity on reports China has banned Australian coal.
The prime minister said the Chinese state-owned media reports had not yet been confirmed by the government in Beijing.
“Until we are in a position to have that clarified then we can only treat this as media speculation,” he told reporters on Tuesday.
“If that were the case, then that would obviously be in breach of WTO rules, it would be obviously in breach of our free trade agreement, and so we would hope that is certainly not the case.”
Mr Morrison said a Chinese ban on Australian coal would be a lose-lose for both countries.
However, he noted India and Japan were also large buyers of Australian coal, meaning the industry had a “diverse customer base”.
Trade Minister Simon Birmingham is deeply troubled by the reports.
Dozens of ships carrying Australian coal have been stranded off the coast of China for months due to supposed environmental problems.
But overnight, a Chinese state-owned media outlet reported power plants had been directed to stop taking Australian coal.
“We see these reports and obviously are deeply troubled by them,” Senator Birmingham said.
“They, if true, would indicate discriminatory trade practices being deployed by Chinese authorities and we would urge them to rule that out swiftly.”
It’s the latest crackdown by China on Australian goods, which has so far hit consumables including beef, wine, barley and seafood, plus timber.
Senator Birmingham said the Australian government was close to finalising a complaint to the World Trade Organisation over Chinese tariffs imposed on barley.
“We are well prepared in terms of the analysis we have undertaken to mount that case,” he said.
Australian exporters heavily reliant on China have been brought to their knees by deteriorating trade ties.
Senator Birmingham said he could understand if Australian exporters looking to do business in China were more sceptical about entering into contracts.
There are suspicions the trade tensions have grown from China’s grievance list spanning Australia’s foreign investment rules, banning Huawei from the 5G network, and the push for an inquiry into the origins of COVID-19.