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China threatens embargo on low-CV thermal coal

Chinas National Energy Administration (NEA) is framing a policy to curb import of low grade thermal and coking coal by imposition of import ban to address the problem of poor air quality in Chinese cities due to high emission levels from power plants, as reported by proactiveinvestors.com.hk.

Unconfirmed reports say that thermal coal with low calorific value less than 4,500kcal/kg, ash content of more than 25% and a sulphur content of more than 1% will be banned. Chinas proposal has the potential to displace all its lignite [imports] and more than 50% of its Indonesian thermal coal imports, around 100 million tons.

Winners, if implemented, would be Australian coal suppliers of high ash Australian 5,500 kcal/kg NAR thermal coal, as Chinese importers would likely buy more of this product and wash down its maximum 23% ash content to blend with domestic thermal coal. Of course, the ban could also affect Australian coal companies with projects in Indonesia as well that fall under the net.

The reports also point out possible ban on coking coal import with more than 12% ash content, 1.75% sulphur and more than 12% total moisture. However, the time line for implementation is not clear as NEA is reported to be seeking inputs from stake holders in industry. The timing of the potential embargos introduction has not been disclosed to Chinese market participants.

NEA is also proposing to tighten coal import procedures by setting criteria for Chinese coal importers:
1. Registered capital of more than CNY 50 million
2. Imported more than 1 million ton coal in past years
3. Must have adequate stockyards

However, market participants are skeptical about implementation of this policy. If implemented, while Chinese power plants running on low caloric thermal coal would be hit hard, Indonesia would be the biggest looser with almost 100 million tons of at stake. The limit on sulphur would also effect US coal miners. Domestic thermal coal producers in China have reportedly voiced their support for the proposed block on imported lower caloric value thermal coal, as this grade competes aggressively with a large proportion of their output which is between 4,500-5,500 Cal/kg NAR.
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