China Will Dump Low Quality Australian Coal From 2015

A vendor rides on a bicycle with balloons for sale along a street as heavy smog engulfs the city on December 25, 2013 in Neihuang, China. (Photo by ChinaFotoPress/Getty Images)

China will ban the import of high ash and sulfur coal from January as part of its plan to improve air pollution levels.

The Asian powerhouse’s National Development and Reform Commission said this week from January 1 it will no longer allow the import of coal with more than 40 per cent ash and 3 per cent sulfur, as it is keen to substitute coal for gas to reduce emissions and improve air quality in the country’s major cities.

Poor air quality has been a long-standing issue, particularly in Beijing where smog levels regularly exceed government standards. Earlier this year someone bought a jar of fresh air in the country for almost $900. More on that here.

New research by Macquarie Bank and Wood Mackenzie has found the changes could affect more than half of Australia’s thermal coal exports to China. Australia ships about 49 million tonnes of thermal coal to China.

According to the AFR, China’s new rules, revealed on Tuesday, include reducing import volumes by 50 million tonnes over just this year.

“Those restrictions affect 100 per cent of Australian thermal coal exports,” Wood Mackenzie’s China consulting manager Rohan Kendall said.

“The risk for Australian producers is that Chinese importers turn more to Indonesia rather than higher-price, higher-quality Australian coal.”

And while washing the coal to reduce ash levels is a possibility, it would increase costs at a time when many operations are already fighting margin squeeze and openly stating they’re on the brink of closure because of uneconomical conditions.

China is the world’s largest coal user, consuming about 3.5 billion tonnes of the black rocks a year, according to the China Coal Industry Association. It is also the biggest coal importer at about 300 million tonnes a year.

A good portion of the coal consumed does come from China’s domestic mining industry but Australia and Indonesia both account for big shares of the pie.

While Australia’s mining sector has previously said it is in a relatively good position with plenty of high quality reserves below the line, the fallout from these changes could inflict pain on Australia’s already struggling coal exporters.

Uncertainty around the ban has weighed on prices, with thermal coal falling about 2 per cent in the past fortnight alone.

There is also potential for the inefficient coal to flood the market, pushing prices down further which in a nasty cycle has the potential to see more mines shut and jobs lost in Australia.

Earlier this year the World Health Organisation named air pollution as the “world’s largest single environmental health risk”, reporting 7 million deaths across the world were the result of air pollution in 2012.

There’s more here.

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