Wood Mackenzie: Chinese restrictions on low quality coal and impact for suppliers

(17 September 2014)--As part of their environmental policy, the Chinese government announced this week plans to restrict the use of low quality coal domestically. In response to industry uncertainty about the impact of these restrictions, Wood Mackenzie has just published a report that details our immediate analysis of the situation and impact for key suppliers to China such as Australia and Indonesia. The report is titled 'The impact on Australia of Chinese coal quality restrictions'.

Some news articles have already mentioned our view, which may have been potentially misinterpreted by some of subscribers. In order to clarify our position, please note our view is as follows:
? There is still considerable uncertainty about how the quality restrictions will be applied. At face value they would apply to a large portion of total Chinese import demand however if not applied to power utility consumption then the impact will be far less significant.
? The quality restrictions apply to both imported and domestic coal and therefore will increase demand for imported coal because imported coal is generally lower ash and sulphur than domestic coal. Indonesian exports are generally low sulphur and ash and consequently will stand to benefit from the ban.
? Not all imported coal would satisfy the 16% ash and 1% sulphur limits including approximately 80% of Australian high ash exports to China. Australian exporters would be able change the processing of the coal to meet the 16% ash limit however the associated increase in cost would threaten the economics of these exports. (ends)