Australian miners are calling for China’s recent restrictions on coal imports to be suspended to give officials from both countries a chance to “assess the situation”. As part of its Air Pollution Prevention Plan, China is now placing greater restrictions on the import, sale and burning of low grade coal in the country.
However, as reported in the Financial Times, Australian miners are claiming the regulations are “unfairly blocking cargoes at Chinese ports and increasing the cost for exporters at a time when seaborne coal trade is under severe stress”.
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Tim Buckley, analyst at the Institute for Energy Economics and Financial Analysis, suggests in the Financial Times that “the seaborne thermal coal market is in structural decline. Last year, China reduced its coal imports by 11%. This year, the rate of decline has accelerated exponentially.”
Australian coal miners are currently the first to bear the brunt of these changes. Since the introduction of the quality control tests, mining companies have been anxiously working to obtain lab results testing their coal for the restricted levels of sulphur, ash, fluorine and phosphorus. In addition, discussions between buyers and sellers of Australian coal have apparently been in deadlock over who foots the cost if a shipment fails to pass the quality criteria.
As a result, the CRU Group reports, there have been delays in trading activity with China, with suppliers looking else to sell elsewhere due to the uncertainty and delays caused to deliveries. Those exporting and trading coal will therefore either have to depend on strong growth elsewhere (perhaps from the increasing demand for cheap energy in India or Southeast Asia) – or face increased supply disruptions.
This recent tightening of restrictions on the quality of imported coal to China forms part of a broader trend towards pollution restrictions in the international fossil fuel market. Indonesia has introduced a licencing process to restrict the export of coal out of the country. China is also imposing regulations to restrict imports of crude oil, which suggests its focus on energy-intensive manufacturing is coming up against other pressures. Traders are now being advised to consider how business will be affected by increasing import and export restrictions.
As HFW comments, the impact of these regulations on the environment, economy and coal producers is still unclear. However questions are now being asked about the long-term viability of the seaborne coal trade.
Financial Times (2015, July 5) Australia miners cry foul over China coal-testing regime