UPDATE 1-China moves to aid struggling coal industry, cut low-grade imports

Thu Nov 28, 2013 6:08am EST

(Adds details, market comment)

By Fayen Wong and Rebekah Kebede

SHANGHAI/PERTH Nov 28 (Reuters) - China will raise its threshold for coal imports, tighten approvals for new coal mines and push industry consolidation in a bid to help its coal sector, which is struggling with overcapacity and widespread losses.

The move to curb imports of low quality coal by the world's largest producer and consumer of the fuel comes as China's new leaders have vowed to tackle a pollution crisis that has stoked public anger.

Coal miners have also been lobbying Beijing to block a flood of cheap imports that has triggered vicious price competition.

Details on the thresholds for sulphur and ash content are still being worked out, the country's State Council, or cabinet, said in a document issued late on Wednesday, adding that it would encourage imports of high-grade coal.

The proposals, if implemented, would benefit Australian miners who produce low-ash coal of high calorific value, and threaten the export prospects of Indonesia's low-ranked coal miners.

"Perhaps they recognise that China faces overcapacity of coal supply," said Serene Lim, an analyst with Standard Chartered Bank in Singapore.

"That, coupled with awareness and concern about pollution, means coal demand might not be as strong as what they had forecast."

But some traders were sceptical that Beijing was serious about blocking low-grade imports, after tough talk on import curbs earlier this year resulted only in a very watered-down policy that had little market impact.

"People just don't think it will happen," one Singapore-based market source said. "They haven't given details on the sulphur category and they also didn't give a timeline. Who knows whether the government is serious this time?"

A ban was previously drafted by the National Energy Administration to block coal with calorific value lower than 3,941 kcal/kg, and limit ash and sulphur content to no more than 20 percent and one percent respectively.

But a final ruling on the ban was postponed in the face of strong opposition from domestic power generators.

Steam coal with high sulphur content causes sulphur dioxide when burnt, the main cause of acid rain which damages forests, lakes and building. Coal with high ash content of above 10 percent causes power plants to emit more particulate matter.

China will set differential tariffs on coal grades and step up quality checks on imports to curb shipments of poor-quality coal, the cabinet document showed.

HELPING MINERS

Hit by a slowing economy, China's coal sector has been plagued by overcapacity and falling prices over the past year.

A flood of cheap imports, up roughly a fifth in the first 10 months of 2013, after having jumped by a third in 2012, has also added to the woes of local miners, forcing them to sell at a loss just to retain market share.

Coal producers, including China Shenhua Energy Co Ltd , China Coal Energy Co Ltd and Yanzhou Coal Mining Co Ltd have all reported weak earnings this year.

To help cut miners' costs, Beijing has ordered coal-rich provinces to scrap arbitrary levies on mines by year-end, and hasten the reform of the value-based resource tax.

Beijing said it would halt the approval of new coal mines with an annual capacity of less than 300,000 tonnes and hand out severe punishments to firms that start building before getting approvals, to curb "disorderly production growth".

It will also phase out mines with output of less than 90,000 tonnes a year and shut those that fall short of safety norms. (Additional reporting by Beijing newsroom; Editing by Clarence Fernandez)

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