LAUNCESTON, Australia, Sept 17 (Reuters) – Who to believe? The traders and analysts who say China’s new regulations on coal quality is a body blow to Australian exports, or the companies and their association who say the impact will be insignificant.
In this case, it seems far more likely that the impact will be minimal, but not non-existent, as the new rules will lead to changes in the composition of coal China imports. A far bigger impact may come from the curbs on transporting low-quality domestic coal, which may actually boost imports.
In theory, the Chinese ban from the start of 2015 on coal imports above certain ash and sulphur contents appears to favour Indonesia, the world’s biggest shipper of thermal coal, over Australia, the world’s top exporter of metallurgical coal and number two for thermal coal.
China’s new rules aren’t uniform across the country, but for exporters, the most relevant is the ban on using coal with ash content higher than 16 percent and sulphur of 1 percent for cities in the southern Pearl River Delta, the eastern Yangtze River Delta and three northern cities including Beijing, Tianjin and Hebei.
The southeastern cities are biggest users of imported coal, given their distance from the bulk of China’s own coal output. The fear for Australian exporters is that 80 percent of the 54 million tonnes of thermal coal it exported to China in 2013 exceeded the new ash limit, according to consultants Wood Mackenzie.
That sounds dire, but isn’t an accurate reflection of the real situation for Australian coal exporters.
Research by Morgan Stanley shows that 32.3 million tonnes of Australian thermal coal output has an ash content of great than 16 percent, while less than 10 million tonnes had sulphur of more than 1 percent.
Australia exported about 192 million tonnes of thermal coal in the 2013-14 fiscal year ended June, according to the government forecaster.
It’s also possible that much of the tonnage that doesn’t meet the ash requirement could be washed to make it compliant, although this would boost the cost and it remains to be seen whether Chinese buyers would be prepared to pay extra.
But even if the higher ash coal is excluded from going to China, it is still clear that Australian could easily maintain current volumes of exports to China.
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