African Integrity Magazine – China’s Coal Proposals, Hope For Exporters

China’s Coal Proposals, Hope For Exporters

Nov 18, 2014 Samuel Foreign News 0

When the best thing you can say about new policies is that they aren’t as bad as they could have been, then you know your industry is in deep trouble.

China’s proposed cap on coal consumption and ban on low-quality imports won’t have sparked celebrations among export-focused coal miners, but may have given them some hope that the world’s top importer of the fuel will remain open for business.

The States Council China’s cabinet, has published a draft version of a law to tighten air pollution control by cutting the use of coal, which is used to generate about 80 percent of the nation’s electricity.

The draft didn’t spell out exactly what the consumption cap would be, nor the quality standards that would be imposed on imported fuel.

However, industry sources say the recommendation from the National Energy Administration is that coal with a sulfur content of more than 0.6 percent and ash content of more than 15 percent to be banned.

What is also interesting to note is that the proposed import ban doesn’t specify heating value, meaning low-calorific coal could still be shipped in as long as it has low ash and sulfur.

At face value, this appears to favor Indonesian producers, whose low-calorific coal meets the ash and sulfur standards, while penalizing exports from Australia and South Africa.

However Morgan Stanley, analysts, in September said about 39 percent of Australian output may be excluded if the proposal becomes law.

While this sounds significant, the report points out that only a small proportion of that 39 percent of output goes to China currently, and there is still plenty of supply from the remaining 61 percent that could meet any shortfall.

It’s also likely that Australian and South African producers will waste little time in trying to convince Beijing that banning high calorific coal while still allowing low calorific shipment makes little sense from a pollution perspective.

More important for exporters to China will be the overall cap on consumption, which the current five-years plan pegged at 4.1 billion tonnes by next year.

Assuming this level becomes a permanent cap, the main issue is what action Beijing will take to limit domestic production, which stood at 3.7 billion tonnes in 2013, and is likely to be around this level in 2014 as well.

If Chinese domestic output is kept around current levels, or increases slightly, it will still mean plenty of opportunities for imports. However, if the domestic industry is allowed to mine over 4 billion tonnes a year, it’s likely that imports will be squeezed even harder than they are by the current low pricing.

– With Agency Reports