China's looming low-grade coal ban boon for Australia, SA coal


Given the pressure from domestic producers and the chronic pollution across the nation, China is considering clamps on low grade coal imports. While this is expected to radically transform the global scene, the import ban is set to cause volatility in thermal coal prices, even as it boosts domestic benchmark prices.

The imminent ban could also swing things in favour of Australia and South Africa, which are set to usurp Indonesia as the main source of coal for China.

Indonesia has been the largest producer and shipper of lower calorific value coal to the Chinese market, supplying about 50 million metric tonnes per year of sub-bituminous grades and cornering another 50 million metric tonnes per year of lower quality material classed as lignite in Chinese customs data.

With consumption of 3.4 billion tonnes of coal last year, China had to import 200 million tonnes to complement its own production of 3.2 billion tonnes.

Market participants say that not only will coal consumption be drastically reduced as a result of the policy, China could well become a net exporter of coal again.

Currently, China imports about 200 million tonnes per annum. While this accounts for one quarter of the international seaborne thermal coal market, a shift in policy could well lead to a lowering of thermal coal prices in the global market, with marginal producers forced to shut up shop, say analysts and broking houses.

Credit Suisse reported in a recent briefing note that vocal, domestic industry majors had pushed for the proposed ban. Massive air pollution is one factor that seems to be driving China to restrict its low grade coal consumption. Capital Beijing has routine unhealthy conditions that has been a cause for worry.

While some reports indicate that China’s proposed ban would boost domestic benchmark prices by as much as 8% with supplies draining off, for the coal mining industry in Indonesia, thousands of jobs are also at stake.

Commenting on the implications, Australia's Macquarie Bank said Indonesian suppliers would be the obvious losers. The Bank has said that this could lead to a two tier market, and that sub bituminous material could be discounted even more heavily. Last year, a slump in Chinese demand brought on volatility in Asian coal prices.

However, while the ban of coal imports is expected to help Chinese miners, it could also help energy producers in India, who have been importing coal to meet their needs.

Incidentally, India was the largest Indonesian coal importer since January 2011 until April 2011, until China stepped in to become the largest importer of Indonesian coal and has held onto that position since May 2011.

Indonesia's Energy and Mineral Resources Minister Jero Wacik said that the government would increase coal exports to other countries (read India), and look for new markets, given China's ban.

The ministry's Supriatna Suhala said India, Sri Lanka, Bangladesh and Vietnam could be potential markets for Indonesian coal and take charge of the excess 45 million tonne of coal that the country produces. Supriatna added that India consumed 90 million tonnes of Indonesian thermal coal last year, and would need more coal to feed its power plants.

Source from : Mineweb