A significant portion of Australia's coal exports to China could be at risk from a Chinese government decision to block imports of lower quality "dirty" coal from 2015, potentially hitting exports worth billions of dollars.
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The government has decided to limit the use of imported coal with more than 40 per cent ash and 3 per cent sulphur in the three main coal-using regions from January 1, 2015 in a bid to improve air quality, especially in the major cities such as Beijing.
It follows a recent move by the authorities in China to force power utilities to slow coal imports, also with the aim of improving air quality.
Consultant Wood Mackenzie has estimated that the Chinese ban could affect more than half of Australia's thermal coal exports to China, although some of this displaced coal could replace coal re-directed from third markets to China to fill any shortfall.
Additionally, Australian exporters could opt to blend poorer quality Australian coals with better quality coal to get around the ban, or to wash the coal to reduce high ash levels in particular.
Australia exports an estimated 49 million tonnes of thermal coal a year to China, which could be at risk with the ban.
Industry sources said the government moves were aimed at propping up the domestic coal miners, as well as assisting the power generators.
China's new rules also include slashing coal imports by 50 million tonnes over the balance of the year, which will hit the Australian industry hard, they said.
The changes are also aimed at protecting China's domestic power generators.
In China, "both the miners and the power companies are doing it hard in the slowdown, and the measures are aimed at giving both some room to manoeuvre," one industry source said.
"Our product is typically around 5500 kilo calories and 24-25 per cent ash. So we've got big problems," Bruce Jacques of IHS McCloskey Coal said.
Some coal producers may be able to wash their coal to comply with these tighter controls, although this involves additional cost and many producers would not be able to puruse this option, he said.
"It is a quality and a quantity approach," Mr Jacques said of the new controls. "If one doesn't get you the other will."
Australian exporters had been wary ahead of the decision to impose the ban, since it appears to apply irrespective of the energy value of the coal, and would appear to give exporters of low energy coals such as lignite a free kick.
"The situation has been fairly fluid the past few hours," one coal producer said, with staff seeking to verify and clarify the extent of the Chinese government's decision.
The fact that the tighter regulations apply to the three main urban conurbations of Beijing-Tianjin-Heibei, the Yangtze River Delta and the Pearl River Delta could mean that the some exporters will not be dramatically affected by the change.
"The real impact could be on Indonesian exporters into China since they have coal with higher sulphur content," the producer said.
The Minerals Council of Australia hosed down any potential impact on Australian exports.
"There is nothing in the information released to date to suggest that Australian coal exporters will be disadvantaged and we are confident that we can meet the proposed specifications," Minerals Council executive director of coal Greg Evans said.
"We disagree with the assertion that the coal import restrictions proposed by China's National Development and Reform Commission will hit Australian exporters hardest.
"There is no evidence to suggest that Australian coal exports to China would be significantly affected if this proposal became law," he said.
"Australia is fortunate to have reserves of high quality black coal, which will continue to be in strong demand from established and emerging markets, including China."
