China is likely to cut the duty on coal exports from 10% currently to 3% as early as January 1, 2015, as it tries to shore up the domestic coal mining sector, industry participants said Friday, November 14.
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No official government statement has been released so far on the cut.
Several of China's largest mining companies are, however, said to be in talks Friday regarding the potential cut, a source from a coal exporter said.
A meeting of miners and exporters with the National Development and Reform Commission to discuss the cut was scheduled to be held Friday afternoon, the source added.
The tax cut will apply to both thermal and metallurgical coal, he said.
The government introduced a slew of measures this year including the imposition of an import tariff of 3-6% on coal on October 15 to help the domestic industry.
It also introduced a new tax system, a shift from the present volume-based model to a value-based one, at the end of September to help miners cope with declining prices.
The spot price of Premium Low Vol hard coking coal CFR China has falling by 17% since the beginning of the year.
"[The move to cut export tariffs are] in line with what the Chinese government has been doing this year," a Japanese trader said.
Most sources expected such a measure to have a greater impact on metallurgical coal than thermal coal as the material is preferred by Asian countries such as Japan and South Korea, compared to Australian imports.
Chinese met coal has a freight advantage when compared to Australia due to geographical proximity.
Current thermal and met coal export volumes are quite small, however, at around 7.3 million mt in 2013, due to high taxes that make Chinese coal more expensive than Australian coal.
The breakdown is around 3.5 million of thermal, 1.1 million coking and 2.7 million anthracite.
About 45% of Chinese exports go to Japan and Korea and 10% to Taiwan, a market source estimated.
Sources, however, remained skeptical as to whether a cut in export duty will spur exports.
A Japanese trader said that "Australian coals are still cheaper."
Japanese and South Korean steelmakers would buy Chinese coal to hedge against disruption of Australian exports through floods or strikes, but under normal conditions volumes were unlikely to surge, he added.
China had imposed a 10% export tax on coal on August 20, 2008 in order to save the "strategic resource" for domestic consumption during the boom years.
China is also a key importer of metallurgical coal, buying 75 million mt in 2013.