http://www.ft.com/intl/markets/commodities
Beijing, Sydney and London – China’s top planning agency has banned the use of low-quality coal in a further effort to address the country’s problem with pollution and its growing glut of the fuel. The move comes as a blow to international miners already smarting from a steep drop in iron ore prices.
Huge new coal projects in the west of China combined with slower than expected growth in the east have already hit China’s coal imports, which for the first eight months of the year are 5 per cent lower than the same period last year. Prices have tumbled.
Australian thermal coal prices, the benchmark for Asia, have dropped more than 20 per cent this year, and could decline further as the door to China closes.
The National Development and Reform Commission said on Monday it would ban the burning of coal with ash content of more than 16 per cent or sulphur content of more than 1 per cent from 2015 in populous and prosperous eastern cities that are the focus of national efforts to fight air pollution.
That would, in effect, bar the import of lower-quality coal from Australia, Southern Africa and elsewhere, since the cities along the east coast are also the biggest consumers of imported seaborne coal.
The move comes as a glut of coal builds in China, putting prices under pressure and buffeting local economies in China’s coal heartlands such as Shanxi. An anti-corruption purge there is exposing a web of ties between local officials and the coal miners who grew wealthy mining the “black gold” that fuelled China’s growth.
Demand growth in the east has slowed sharply because of a slowing economy and pollution curbs that have reduced operations at steel mills, power plants and other heavy, coal-burning industry on the North China Plain. “Eastern China coal demand is peaking this year,” said Alex Whitworth, of energy consultancy IHS in Beijing.
China’s electricity output fell by 2 per cent last month against a year ago, its first such drop in four years. But thermal power dropped 11 per cent.
Other factors reducing coal demand in the east include the surge in coal output in China’s arid west and a flood of new hydropower projects that began generating this summer. The deployment of long-distance transmission lines means those dams and new, state-of-the-art thermal power plants in the west built atop giant new mines can supply the east, eliminating the need to build any more power plants near wealthy coastal cities.
This makes Chinese planners confident they can survive without the low-grade but cheap coal that accounts for much of China’s murky air. The NDRC’s new regulations ban the mining or import of low-grade coal with ash content of more than 40 per cent or sulphur content of more than 3 per cent. They restrict the transport of coal with ash content of more than 20 per cent or sulphur content of more than 1 per cent.
Many of the world’s larger miners and traders had already readied for restrictions from China, but for those who are already close to the break-even point, it is another blow.
Daniel Morgan, analyst at UBS in Sydney, said many Australian exporters that did not meet the new specifications could respond by washing or blending coal. “This would require a massive sampling and compliance regime in China in order to be successfully implemented,” he added.
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