--Clyde Russell is a Reuters columnist. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Sept 11 When the best
thing you can say about new policies is that they aren't as bad
as they could have been, then you know your industry is in deep
China's proposed cap on coal consumption and ban on
low-quality imports won't have sparked celebrations among
export-focused coal miners, but may have given them some hope
that the world's top importer of the fuel will remain open for
The State Council, China's cabinet, on Tuesday published a
draft version of a law to tighten air pollution control by
cutting the use of coal, which is used to generate about 80
percent of the nation's electricity.
The draft didn't spell out exactly what the consumption cap
would be, nor the quality standards that would be imposed on
However, industry sources say the recommendation from the
National Energy Administration is that coal with a sulphur
content of more than 0.6 percent and ash content of more than 15
percent be banned.
What is also interesting to note is that the proposed import
ban doesn't specify heating value, meaning low-calorific coal
could still be shipped in as long as it has low ash and sulphur.
At face value, this appears to favour Indonesian producers,
whose low-calorific coal meets the ash and sulphur standards,
while penalising exports from Australia and South Africa.
However, Morgan Stanley analysts, in a Sept. 4 report, said
about 39 percent of Australian output may be excluded if the
proposal becomes law.
While this sounds significant, the report points out that
only a small proportion of that 39 percent of output goes to
China currently, and there is still plenty of supply from the
remaining 61 percent that could meet any shortfall.
It's also likely that Australian and South African producers
will waste little time in trying to convince Beijing that
banning high calorific coal while still allowing low calorific
shipments makes little sense from a pollution perspective.
More important for exporters to China will be the overall
cap on consumption, which the current five-year plans pegged at
4.1 billion tonnes by next year.
Assuming this level becomes a permanent cap, the main issue
is what action Beijing will take to limit domestic production,
which stood at 3.7 billion tonnes in 2013, and is likely to be
around this level in 2014 as well.
If Chinese domestic output is kept around current levels, or
increases slightly, it will still mean plenty of opportunities
for imports. However, if the domestic industry is allowed to
mine over 4 billion tonnes a year, it's likely that imports will
be squeezed even harder than they are by the current low
The best case scenario for coal exporters is that the new
regulations make some Chinese domestic mines unviable, thereby
limiting domestic production.
NO DECISIVE ACTION IN INDIA
The other issue facing coal miners currently is the by now
customary state of uncertainty in India.
The Indian Supreme Court this week reserved judgment to an
unspecified later date as to whether it would cancel the award
of more than 200 coal blocks it had previously ruled illegal.
The net effect of this ruling is to delay, once again,
efforts to reform the nation's beleaguered coal sector.
What is becoming clear is that the new government of Prime
Minister Narendra Modi is not moving as fast as many had hoped
to resolve the coal crisis.
In addition to questions over the ownership of blocks that
supply private power generators and factories, state behemoth
Coal India is again under the gun for failing to provide
sufficient supplies to many power plants.
Coal stocks at power plants, which produce about 60 percent
of the nation's power, have fallen to six days' forward cover -
down nearly half since Modi's national election victory in May.
India is facing several challenges on the coal front,
including uncertainty over private mine ownership, an inability
to mine and transport sufficient supplies, large losses at
generators forced to sell at regulated prices that are below
costs and a lack of money to pay for imported fuel.
India, the second-ranked importer of coal, should, in
theory, be turning to imports while it sorts out its domestic
But the fact remains that loss-making generators will be
reluctant, or unable, to buy imported fuel.
Perhaps it needs a repeat of a crisis on the scale of the
2012 blackout that cut power to more than half a billion people
to spur Modi into action, but, for now, coal exporters can't
count on higher Indian demand.
(Editing by Joseph Radford)