China coal crisis: Nearly HALF of Australia’s coal exports could be hit by a ban

2014-09-18

The need for Australian coal aided the nation through the Global Financial Crisis and fueled the economy when it needed it most.

However, under new restrictions enforced by China’s powerful National Development and Reform Commission, an import ban has been flagged for certain low-grade imported coal.

Created with the aim of reducing pollution and improving air quality, the restrictions are set to be enacted from January 1, 2015, leaving many wondering how the fallout will impact the Australian coal industry, which may be exposed to billions of dollars in lost sales due to the changes.

At the same time, the country will also be moving to slash the amount of coal imported, a move which will give China’s domestic coal miners a lift and potentially impact on the volume it imports from countries such as Australia.

The restrictions apply to coal with more than 16 per cent ash and 1 per cent sulphur, a far cry from the Australian coal standard.

Australia exports an estimated 49 million tonnes of thermal coal a year to China, and about 39 percent of this may be excluded if the proposal becomes law, said Morgan Stanley analysts in a September 4 report.

Coal from 28 mines around Australia would be affected, the largest of which is located in Newcastle, NSW, which stands at 170 million tonnes.

Resource exporters have been left to clarify what the new regulations will actually mean for the industry.

Senior Industry Analyst at IBISWorld, Caroline Finch, said that the restrictions with provide additional challenges in an area where producers are already under a lot of pressure.

‘Thermal coal exports for the last financial year totaled $16.4 billion.’

‘These regulations will increase production cost in certain countries such as Australia, making other countries much more competitive.’

‘Thermal coal is found all over the world, so Australia doesn’t have a monopoly on it.’

Gavin Wendt, Senior Resource Analyst at MineLife said that China had been discussing making the changes for several years, and that whilst the decision shouldn’t come as a surprise to the coal industry, there would be a notable impact on Australia’s thermal coal exports.

‘Coal prices are under significant pressure anyway.’

‘Since the GFC there hasn’t been the same demand for coal.’

The restrictions apply to coal with more than 16 per cent ash and 1 per cent sulphur, a far cry from the Australian coal standard.

The restrictions apply to coal with more than 16 per cent ash and 1 per cent sulphur, a far cry from the Australian coal standard.

Countries such as the US have started exporting coal, flooding the market and pushing prices down.’

‘If China does indeed implement this ban and stick to it, I would think there would be a reasonable impact on the coal industry because there would be a large amount of coal which doesn’t meet the new standards.’

‘Australia is one of the biggest exporters of coal to China. Companies such as BHP Billiton and Rio Tinto are currently producing coal that wouldn’t meet the criteria.’

‘They are probably putting a brave face on at the moment.’

Dean Dalla Valle, President of Coal at BHP Billiton said, ‘We support efforts to improve environmental standards,’

‘We expect to be capable of meeting the proposed NDRC regulations, which stipulate a range of quality limits for both domestic and imported coal, should they be finalised and implemented, and do not anticipate a material impact to our business.’

However, Mr Wendt has raised the problem of coal produced in Australia which does fail to meet the standards.

‘The issue is, what will Australia do with coal that doesn’t meet the standards?’

‘Are there ways they could wash or upgrade it to minise the harmful elements? If they can, would the cost of doing so be economically viable in the long run?’

The highest restrictions will be placed upon coal usage in high-density areas in the north of China, such as Beijing,Tianjin, Hebei, and areas around Shanghai, as well as cities in the southern Pearl River Delta and the eastern Yangtze River Delta.

However, the Minerals Council of Australia has downplayed the concerns, calling the reports that the move would devastate Australia’s multi-billion dollar exports to the Asian economic powerhouse ‘misleading and unnecessarily alarmist…’

‘The future for Australia’s $2.7 billion annual coal trade with China remains strong.’

Greg Evans, Executive Director of Coal at the Minerals Council of Australia said that the main coal type affected was brown coal (lignite), which Australia does not export, and low quality domestic black coal.

‘To the extent it impacts imports of black coal destined for northern cities this relates to small scale coal use, not large scale power plants or other industrial users,’ said Mr Evans.

‘There is nothing in the information which suggests that Australian coal exporters will be disadvantaged and we are confident that we can meet the proposed specifications,’

‘Australia is fortunate to have reserves of high quality black coal, which will continue to be in strong demand from established and emerging markets, including China.’

‘Coal production has exceeded the demand,’ said Mr Wendt

‘There is only one way coal prices will go, and that is down.’

Source from : Daily Mail

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