Chinese coal imports and Australian mining companies - iMINCO Mining Training Information

Chinese coal imports and Australian mining companies

2015 Chinese coal imports – how do the new rules affect Australian coal exports?

Australian coal exports – what are the facts?

These are some of the questions being asked in the media as the price of coal levels out, causing ripples throughout the mining industry in Australia. Mining companies in Australia, as we all know, have been working hard to streamline their operations and run a ‘tight ship’. When coal prices were high, there was little focus on cost management, rather it was a case of get as much coal out of the ground as possible, no matter what the costs.

“taking its foot off the urban development pedal”

With China taking its foot off the urban development pedal and imports into the country slowing, it was rumoured this was the end of the lucrative days of mining.

There are mining company executives, stock traders and commodity analysts who are approaching this situation from many angles. Each has their own agenda and outlook as to what is happening in the coal industry right now and what could happen in the future.

“create opportunities for mining companies”

Bearing in mind that opinions and presumptive analysis are just that. Facts and figures make sense on a balance sheet, although as is the case more often than not, anything can happen in today’s finely balanced world of global trade. Economic events and shifts in circumstances can create opportunities for mining companies all over the world.

Should Australia care about Chinese coal imports?

Who do we believe these days?

The stock room traders and high flying city analysts are hailing China`s new regulations on coal quality as a kick in the guts for Australian exports. Mining companies and their associations are indicating the impact of these new Chinese regulations are just a ripple in an ocean of opportunity.

All pointers seem to indicate that the impact on the Australian coal industry will be small. However, there is expected to be some impact because China’s new guidelines could lead to changes in the quality of coal they will allow into the country.

“Australia is the world`s biggest exporter of metallurgical coal and 2nd biggest of thermal coal”

Looking at it this way, the Chinese ban on coal imports (from the beginning of 2015) means that coal from Indonesia may be preferred because Indonesia is the world`s biggest supplier of thermal coal. Australia is the world`s biggest exporter of metallurgical coal and number two in the world for thermal coal. China currently imports about 7 percent of its coal consumption needs.

South eastern Chinese cities are the largest consumers of imported coal, owing to their distance from the majority of China`s own coal mines.

Australian mining companies are wrestling with  figures that indicate 80 percent of the 54 million tonnes of Australian thermal coal exported to China in 2013 was above the new limits imposed by China.

Although that statement sounds like it is a real issue for Australian mining companies and coal exporters, it may not be an accurate reflection of the real situation.

“192 million tonnes of thermal coal exported in the 2013-14 period”

Australia exported about 192 million tonnes of thermal coal in the 2013-14 period. Research shows about 32.3 million tonnes of Australian thermal coal output has an ash content of greater than 16 percent, while less than 10 million tonnes had sulphur of more than 1 percent.

Given the facts about the ash content of Australian coal, even if coal is prevented from heading to China, Australian mining companies could easily maintain current Chinese export volumes.

Reframing the issue of China’s new rules on imports of coal, the likely event is that the coal China rejects may be offered at a discount rate to Southeast Asia, India and North Asian countries.

“Australia could benefit from higher prices”

On the other side of the coin, mining companies in Australia could benefit from higher prices of cleaner and more efficient coal supplies.

“There is nothing in the information which suggests that Australian coal exporters will be disadvantaged and we are confident that we can meet the proposed specifications,” said Greg Evans, who is the executive director of the Minerals Council of Australia.

BHP Billiton says China’s new rules may not be as bad as predicted

Overall it seems the impact on Australian exports may be muted, with BHP Billiton, the world`s largest mining company and a major exporter of Australian coal, saying it expects its Australian coal mining business to remain unaffected.

Current thinking by analysts and commodities specialists, seem to be that the new Chinese rules will favour Indonesia as a preferred supplier, given that just about all of its coal meets the ash and sulphur requirements.

However, there could be some issues with this, as the new rule sets the minimum energy requirement for coal that is transported more than 600 kilometres from the port where the coal is loaded.

“a bonus for Australian coal suppliers”

A lot of the imported Indonesian coal would have to be consumed close to the ports it is shipped to, which may be a bonus for Australian coal suppliers.

One of the facts being overlooked by the analysts is that the restriction on calorific value also applies to domestic output. Coal with a heating value of less than 3,940 kcal/kg, ash content of more than 40 percent and sulphur of 3 percent, cannot be moved more than 600 kilometres from the production site.

These are the restrictions imposed by the Chinese government that will affect domestic Chinese coal output, especially in the southeast regions as the fuel mined there tends to be of higher ash and sulphur content, with the better quality coal coming from the north and northwestern provinces.

If the aim of the new Chinese rules is to improve air quality, then limiting the domestic mining industry would be far more effective than restricting imports.

“40 percent more coal used if from Indonesia”

When you also consider the facts that a typical Chinese power plant will use as much as 40 percent more coal if its uses 3,700 kcal/kg Indonesian coal instead of 5,500-6,000 kcal/kg from Australia, the restrictions that are slated to commence in 2014 may not result in much reduction in pollution at all. Go figure . . .