A draft regulation from the National Energy Administration (NEA) could see China set new quality standards for both imported and domestic traded thermal and coking coal, and prohibit the import and domestic delivery of coal that do not meet the new standards. The NEA is preparing the new regulation with the aim to reduce air pollution, and is seeking feedback from the coal industry.  1

According to the draft, proposed quality standards for imported thermal coal or thermal coal to be delivered long distance are maximum 25% ash on dry basis, maximum total sulphur content of 1% on dry basis and net calorific value of no less than 4540 Kcal/kg. As for domestic coal, the proposed specifications are maximum 40% ash on dry basis, maximum total sulphur content of 3% on dry basis, no more than 20% total moisture, and net calorific value no less than 3584 Kcal/kg.

This proposal means that domestically produced thermal coal that does not meet proposed quality standards will need to be traded and consumed locally within its region of production through the use of clean technology such as desulphurization.

For coking coal, the draft proposes to set the quality standards for all coking coal traded in China at a maximum 12% ash content, no more than 1.75% of total sulphur and maximum 12% total moisture content. The proposed standards are applicable to both domestic and imported coking coal and are seen as a move to stop Chinese traders importing unwashed or high-sulphur coking coal.

Indonesia, which exports coal to China, may be impacted by the regulations if adopted by the Chinese Government, however a number of mining companies in the archipelago say China is unlikely to implement the restrictions. Officials from PT Harum Energy (HRUM), PT Permata Energy Resources and PT Adimitra Baratama Nusantara agree that the ban is unlikely.

As much as 10% of Indonesia’s annual coal output may be affected by the rules, according to the nation’s coal mining association. The country typically produces cheaper grades that have lower calorific value than shipments from countries such as Australia, the second-largest exporter. China, Indonesia’s biggest customer, blends the fuel with higher-grade supplies to reduce costs.

Permata Energy’s vice president Aris Munandar says, “We have talked with several buyers who said if the ban was in force, it will make their industry uncompetitive. I don’t think the ban will be implemented because the coal industry is still in consolidation. It’ll be very difficult if there’s such a limitation.”

Adimitra Baratama’s marketing director Michael Soerijadji says, “The likelihood of this ban happening, based on our conversation with our Chinese customers, is highly unlikely. If it does happen, the most likely outcome would be the low calorific value price will drop and high calorific will increase. We also heard talks about the rejection limit being lowered.”