In light of what it says are “unnecessarily alarmist” reports on the possible impacts to Australia’s coal industry, the Minerals Council of Australia says there is no evidence to suggest that Australian coal exports to China will be significantly affected by the proposed regulations of China’s National Development and Reform Commission.
“The key change is that existing coal quality requirements for coal sold in Beijing, Tainjin and Hebei of maximum 16% ash and 1% sulphur have been extended to the Pearl River Delta and the Yangtze River Delta,” Wood Mackenzie said in a report.
“These areas include much of Guangdong and the area around Shanghai and together represent 105 million tonnes of imported thermal coal de demand in China.”
WoodMac has estimated that about 39Mt of Australia-exported thermal coal has at least 17% ash content.
“On an equity basis the largest exporters of this high-ash coal are Glencore, BHP Billiton and Rio Tinto, which together represent over half the total high exports from Australia,” the research and consulting group said.
Using a chart, Woodmac revealed than Glencore’s share of annual, high-ash coal exports exceeded 10Mt, BHP was about 6Mt and Rio was about 4Mt.
In a separate chart it revealed that Glencore’s Mangoola mine was the leading high-ash exporter with a range of up to 28% ash.
It was followed by Moolarben (Yancoal-operated), Bengalla (Rio), HVO (Rio), Collinsville (Glencore), Wilpinjong (Peabody), Drayton (Anglo American), Ravensworth North (Glencore), New Acland (New Hope) and West Wallsend (Glencore) – with all of these mines exporting coal with ash levels that could exceed 20%.
Yet Woodmac has also “clarified its position” since this report came out as some of its views were “misinterpreted” this week.
“There is still considerable uncertainty about how the quality restrictions will be applied,” Woodmac said.
“At face value they would apply to a large portion of total Chinese import demand, however, if not applied to power utility consumption then the impact will be far less significant.
“The quality restrictions apply to both imported and domestic coal and therefore will increase demand for imported coal because imported coal is generally lower ash and sulphur than domestic coal.
“Indonesian exports are generally low sulphur and ash and consequently will stand to benefit from the ban.
“Not all imported coal would satisfy the 16% ash and 1% sulphur limits including approximately 80% of Australian high ash exports to China.
“Australian exporters would be able to change the processing of the coal to meet the 16% ash limit, however, the associated increase in cost would threaten the economics of these exports.”
A Woodmac analyst also made the point to ICN that the new coal quality restrictions also impacted China’s large domestic output, which can have considerably high ash levels.
Consequently it is possible that the changes, driven by a need to improve China’s air quality in its more heavily populated regions, could in fact create a stronger market for higher quality thermal coal exports from countries such as Australia and Indonesia.
ANZ’s commodity team also supported this thesis, although it estimated that as much as 30Mt of Australian coal could potentially be affected by the Chinese reforms.
“Low-quality Chinese coal is arguably the most impacted, falling well below the impurity thresholds,” ANZ said.
“More detail on the policy will be available prior to implementation on 1 January 2015.”
While uncertainty on the potential impacts could continue for some time yet, it seemed that traders believed the news was better than expected for Australia.
“Given that the nationwide quality restrictions are not particularly restrictive, Cal-15 Newcastle swaps saw a small boost on the news,” Macquarie Private Wealth said yesterday in it commodities report.
“However, the stricter local controls [16% ash limit] remain a concern, as it supplants the looser national limits [40% ash limit] for those important regions.”
