Fears of China moving to ban the import of lower grade coal have again resurfaced amid concern over the country's high pollution levels, with several market participants indicating that the government is seriously contemplating such a move this year.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
Chinese demand for lower grade Indonesian thermal coal has taken a hit after the Lunar New Year as traders and end-users snapped up such cargoes in December and January for first-quarter deliveries as they expected the ban to be implemented in the near term, sources said.
"I heard the Chinese government will definitely ban low-grade steam coal import within this year," a Hong Kong-based trader said.
A Singapore-based trader said that he expected China to push ahead with the ban as early as March 15.
An Indonesia-based trader said that he expected the ban to be implemented by April 15 and that would have a significant impact on lower grade coal prices.
The Hong Kong-based trader said that stocks of lower grade coal -- like 3,800 kcal/kg NAR or 4,200 kcal/kg GAR -- are high in China as traders stocked up such material before a potential ban was in place, but they have been unable to sell this coal to Chinese end-users at current market prices.
A source at a Chinese power utility said that the possible ban on lower grade coal imports was still being discussed.
"The government is serious this time due to rising pollution and public anger," he said, adding that several major miners in China were also lobbying hard to get the import ban in place in a bid to shore up domestic prices.
He said China's National Energy Administration was contemplating banning imports of coal with less than 3,941 kcal/kg NAR, sulfur above 1% or ash above 20%. For domestic coal, NEA is looking at minimum calorific value of 4,300 kcal/kg NAR, maximum ash of 30% and maximum sulfur of 2%, he said.
"Some of the dominant Chinese miners are looking to eradicate smaller miners with production of less than 0.3 million mt/year and stop coal from Mongolia," he added.
If this potential ban on imported coal with maximum ash of 20% is implemented, then South African and Australian coal would be significantly hit, he added.
A source at an Indonesian major lower grade coal producer said the ban was still under discussion and nothing had been decided yet.
He said that there were rumors that the potential ban could be based only on the heating value of the coal, rather than ash and sulfur levels.
A large Chinese utility has declined to enter into agreements with an Indonesian lower grade coal producer for second-quarter cargoes, he said, indicating that an announcement on the ban might be imminent.
However, he said other smaller utilities were still entering into deals to procure lower grade Indonesian coal like 3,700 kcal/kg NAR for deliveries in the second quarter.
"Either [these smaller utilities] know that nothing's going to happen or they are totally unaware of [the potential ban]," he said, adding that if the ban was to be implemented, such utilities could declare force majeure on the contracts and work their way out of the deals.
DOMESTIC PRICES WEAK
Domestic Chinese thermal coal prices have been in freefall since the Lunar New Year holidays as end-users are well-stocked and major miners like Shenhua and China Coal are offering discounts of up to Yuan 20/mt (about $3.25/mt) to lure buyers.
The Platts/Fenwei China Coal Index [CCI 1] for domestic 5,500 kcal/kg NAR thermal coal traded at Qinhuangdao has slumped 15% so far this year.
"The Indonesian market will be completely dependent on the Indian market [if the ban is implemented]," the Hong Kong-based trader said. "Indians have a reason to congratulate themselves as they [could be] the unique market for Indonesian coal," this trader added.
Last year, talks of banning import of coal with heating value lower than 3,940 kcal/kg NAR or coal with above 2% sulfur or ash more than 20% had surfaced in China due to environmental concerns but the National Energy Administration shelved the plan after strong protest from top Chinese utilities.
However, such talks have again gained traction this year amid growing concerns about pollution levels in China. Indonesia is a major supplier accounting for more than 90% of China's import of lignite coal.
In January this year, China imported as much as 26.5 million mt of thermal coal, with lignite accounting for about 7.9 million mt.