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Talk of China ban on low-grade coal imports shakes market

17 May 2013 18:04:34 | csd

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Reports this week that the Chinese government has drafted a law to ban the imports of lower-grade coal have led one ICIS source to describe such a ban as potentially the biggest change to the coal market in a decade, but prices have yet to react as the market awaits firmer news on the issue.

The coal market has been rife with talk that China is set to ban imports of coal with a calorific value of less than 4,500Kcal/kg NAR, which would probably affect the Indonesian and Australian coal markets the most.

China's National Energy Administration has not confirmed a ban, reported in Chinese press, but sources in the market think it is likely to be introduced soon. "If it does come in, it will be quickly, maybe by January next year," a Singapore-based trader said.

Even though China has been a major importer of coal for only the past five years, a ban would be the biggest change to the industry in a decade, Fabio Gabrieli, director of dry bulk analysis and strategy with Swiss-based Mercuria Energy Trading, said at a conference in Nice this week.

Import demand from Chinese buyers is essential to the global seaborne market.

The likely result of a ban would be some end-users in China paying more for domestic coal than the amount they would pay for imports from Indonesia.

If end-users in China have to pay higher prices, it could allow Australian coal, particularly 5,500Kcal/kg NAR grade, to price into China more than is currently the case. Australia will also benefit if bottlenecks continue to hamper supply of coal from China's interior mining regions to its coastal cities. The bottlenecks are easing and it is expected that, by 2015, the constraints will have eased considerably (see CSD 15 May 2013).

Sources said they think the perilous state of some Chinese producers' balance sheets might be behind the reported ban, although an aim to reduce pollution in the country in the next few years was also mentioned.

China-based sources said importers in the country are waiting to see whether the proposed imports ban becomes law before reacting. Fionn O'Raghallaigh

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