China’s Tariff Sends Shivers in Coal-producing Nations

The decision by China to impose a coal import duty this week in an effort to cushion the struggling domestic sector is expected to cost coal producing countries, including South Africa and Australia, dearly.

China is the world’s biggest importer and consumer of half of the world’s coal.

More than 70 percent of domestic coal producers are operating at a loss, and a 24 percent drop in Chinese thermal coal prices this year and cheap imports threatened to sink the country’s industry.

Last week, China’s finance minister Lou Jiwei said the government would introduce a levy of between 3 percent and 6 percent on some coal imports as from Wednesday.

Australian Prime Minister Tony Abbott condemned it as a move “we just don’t want or need”, reported Sapa-AFP last week. “This is the kind of hiccup in our biggest and most important trading relationship that we just don’t want or need. We will work with the Chinese to get to the bottom of what seems to have happened overnight.”

China imported about 54 million tons of Australian thermal coal and 13 million tons from South Africa, said Reuters.

“The import tariff gives locals the room to raise prices over the next few months,” said Sibonginkosi Nyanga, a mining researcher at Imara S P Reid, on Friday. “Beijing probably is not interested in coal prices that are too high, since that would hurt the coal-fired power plants that feed China’s industrial complex. But it is afraid of letting coal miners fail, both because of the thousands they employ and the shadow-banking products they are thought to support.”

Xavier Prevost, a coal analyst at XMP Consulting, believed the new Chinese import tariffs were likely to make coal exports to China dwindle even more. “We will be exporting less coal to China in the future and that will affect the industry negatively. For how long? I don’t know, maybe forever.”

China said previously it would ban the import and local sale of coal with high ash and sulphur content starting next year in a bid to tackle air pollution.

Martyn Davies, the chief executive at Frontier Advisory, a research and strategy firm in Johannesburg noted that China’s relative gross domestic product slowdown, coupled with the government’s focus on qualitative rather than quantitative growth, was driving an agenda that was focusing on environmental issues.

“The long-term trend is away from coal which has accounted for up to 90 percent of China’s power requirements. This will lead to increased regulation and central government control of the sector, including blocking of low grade coal into the domestic economy. This will undoubtedly have a negative impact on countries exporting coal into China,” said Davies.

Shares in some of South Africa’s coal producers declined on Friday, including Exxaro Resources, down 2.13 percent to R123.86 and BHP Billiton, which slid 3.39 percent to R287.02.

Chinese coal mining shares turned higher on Friday. Datong Coal Industry closed up 3.33 percent to 7.75 yuan (R14), while Yanzhou Coal Mining rose 0.45 percent to 8.92 yuan.

The tax resumption is expected to increase the cost of imported coal by 20 yuan per tonne, narrowing the price gap with domestic products. Beijing also plans to ban the sale and import of “dirty” coal.



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