--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, May 22 Asian giants China
and India may be planning to improve the quality of coal they
are burning, but it's unlikely any changes will have much effect
on the level of imports for the foreseeable future.
China's National Energy Administration is considering a rule
to ban imports of coal with a calorific value below 4,500
kcal/kg NAR (net as received), ash of less than 25 percent and
sulphur below 1 percent.
The reason for this is that low-rank coal is more polluting,
as you need to burn larger amounts to generate the same energy.
And in India, specialist monitors are being called in to try
and improve the quality of domestic coal being delivered to
Last month, NTPC, India's largest utility, refused
to pay for coal viewed as substandard, prompting Coal India
, the world's largest coal mining company, to respond
by suspending supplies and raising concerns of blackouts.
Poor quality domestic coal forces Indian utilities to import
at higher prices, even though much of the fuel brought in is
lower-quality Indonesian fuel.
On the surface, these measures in the world's top- and
fourth-ranked importers may seem bearish for the seaborne coal
market, but in reality the impact may be muted, even assuming
they take effect.
The proposed Chinese regulations would seem to mainly target
Indonesian coal, with Jakarta-based stock broker Mandiri
Sekuritas estimating about a fifth of the nation's low-rank
exports would have to be diverted to other markets.
However, Morgan Stanley pointed out in a research note on
Tuesday that the Indonesian coal typically exported to China
already exceeds the standard, so even if the measure is
implemented, the impact will be minimal.
China's coal imports seem to be driven much more by price
factors, especially in the current environment of slowing growth
rates in electricity generation.
Power output did gain an annual 6.2 percent in April,
picking up the pace from March, which posted the weakest growth
in six months.
However, slower economic growth of around 7.5 percent in
2013 will limit power consumption, which only rose 4.3 percent
in the first quarter.
In this light, it may be a surprise that China's coal
imports are still growing strongly, with April's 23.49 million
tonnes up nearly 19 percent on the year, and taking the
year-to-date gains to 25 percent.
China's coal imports could hit 300 million to 350 million
tonnes in 2013, exceeding 2012's record of 230 million tonnes,
according to Phil Ren, president of the China Coal Importers
Notwithstanding the strength in imports, this forecast seems
too optimistic, as it would require imports to average about
26.5 million tonnes for the May to December period, up from 21.8
million for the first four months of 2013.
It would also require imported coal prices to stay
attractive compared to domestic output, and this may not be the
Benchmark Australian prices at Newcastle Port
rose 0.5 percent to $88.03 a tonne last week, while Chinese
prices fell to 612 yuan ($99.83) a tonne from 613 yuan.
At these levels imported coal will struggle to be
competitive, as the cost of freight, insurance and duties still
has to added in, and this is around $18 a tonne currently.
For India, moves to improve coal quality could actually play
into the hands of exporters.
It's doubtful whether Coal India can increase the average
quality of the coal it produces by much, given the gradual
decline in the grade at operating mines, and of reserves.
This means utilities may be forced to buy more higher-value
coal from abroad for blending purposes.
This may not increase the overall volume of imports into
India, which rose 29 percent to a record 135 million tonnes in
2012-13, and are set to grow further this year.
Rather, it is likely that some of the low-rank Indonesian
coal bought by India will be replaced with better-quality
supplies, either from the Southeast Asian nation or from other
producers such as South Africa and Australia.
While the tentative moves to boost coal quality may not have
much immediate market impact, their importance lies in whether
they are the first of many steps.
Given global and domestic concerns about pollution and
carbon emissions in both China and India, it seems likely that
authorities will seek to get more out of the coal they use.
That can only mean a switch to higher quality fuel or
improving technology to extract more, and cleaner, energy from
(Editing by Clarence Fernandez)