New policy may benefit domestic firms, but issues like oversupply, dwindling demand persist, reports Du Juan.
China's decision to reimpose tariffs on imported coal from Wednesday will help domestic coal producers in the short term and pose hardships for Chinese traders and foreign companies in the long run, experts said.
An immediate fallout of the decision by the world's biggest coal producer and consumer would be a sharp reduction in coal imports from Australia, the United States and Russia, they said.
Last Thursday, the tariff committee decided to impose taxes of 3 percent on anthracite and coking coal, 6 percent on thermal coal and 5 percent on briquettes, an alternative fuel source manufactured from coal. The committee also decided to reintroduce the 6 percent import tax set in 2005 on all varieties of coal, with the exception of coking coal.
Though the import tax was abolished in 2007, the decision to reintroduce it comes after a sharp fall in domestic coal prices and huge losses reported by coal producers due to production cuts and mounting wage bills.
"The new policy will reduce China's coal imports to some extent and help domestic coal companies in the short term," said Deng Shun, a coal analyst with ICIS C1 Energy, a Shanghai-based energy information consultancy.
Private coal traders, on the other hand, could see significant profit reductions because of the policy change, Deng said.
As the new rule started to take effect on Wednesday, some traders, whose cargoes with prices already set are still at sea, will face up to 6 percent tariff when the cargoes arrive.
Zeng Hao, a coal analyst with Fenwei Energy Co, an industrial consultancy based in Shanxi province, China's biggest coal producer, said: "They (foreign companies) will have to absorb the price rise, especially if the downstream users don't agree to bear the costs."
A coal trader who declined to be named said he could suffer a loss of more than 2 million yuan ($330,000) on each shipload of 100,000 metric tons of coal, due to the new tariffs.
China imported around 160 million tons of coal, with a total value of $12.67 billion, during the first six months of the year, according to customs data. The new policy will cause more hardships to foreign coal suppliers, who are already cutting costs to weather the slowing demand from China.
Dai Bing, director of the coal industry information department at JYD Online Corp, a Beijing-based bulk commodity consultancy, said Australia would bear the brunt of the new policy as it is the largest coking coal supplier to China.
"The real impact will be felt in May next year, when the domestic demand from steel mills for coking coal rises. The cost of Australian coal exported to China will increase by $3 to $5 a ton because of the tariff," he said.
At present, the CIF (cost, insurance and freight) price of Australian coal in China is around $67 a ton, according to JYD. The Australian producers will have to lower their offer to $64 a ton by then for traders to make up for the added tariff cost.
Dai said the unit profit for China's coal traders is about $1 at the most, and the new policy will weaken the enthusiasm of the traders in the market.
Some varieties of coking coal would continue to be imported from Australia due to the growing demand for high-quality fuel material from industries like steel, Dai said, adding that this would lead to higher domestic coking coal prices.
The growth slowdown in China has already affected Australian mining companies like BHP Billiton Ltd and Glencore Plc which face rising costs and falling prices in China. The new coal tax policy would be another challenge for these companies, experts said.
According to customs data, Australia, Indonesia, Russia and Mongolia were the top four thermal coal suppliers during the first eight months of the year.
From January to August, China imported 40.28 million tons of thermal coal from Australia, 33.43 million tons from Indonesia, 10.61 million tons from Russia and 2.5 million tons from Mongolia.
The second-biggest coal supplier Indonesia will not be affected by the new policy because China has signed a free trade agreement with the Association of Southeast Asian Nations.
"Indonesia is one of the biggest thermal coal suppliers to China. Both the traders and power companies will turn to Indonesia for purchases if Australian coal prices increase," said Dai. "It will also help boost domestic thermal coal prices."
During the first six months of the year, China imported around 28 million tons of thermal coal from Indonesia, accounting for 37 percent of the total thermal coal imports, customs data show.
In addition to the ASEAN, countries like Chile, Pakistan, New Zealand, Peru and Costa Rica all have free trade agreement with China and they will continue to enjoy zero tariffs on coal exports to China, according to ICIS C1 Energy.
Based on the latest data from the US Energy Information Administration, US thermal coal exports to China totaled 83,940 tons in the first quarter of the year.
Forbes reported that many top US coal producers have seen big drops in recent months due to a number of factors, including deteriorating fundamentals for the US thermal coal markets, reduced exports and concerns about shifts from coal-to gas-based power supplies.
Given the relatively small quantity of US coal exports to China, it will not be affected much, Dai said.
Deng with ICIS C1 Energy said although the new policy will help domestic companies for a short period, it cannot fix the contradiction between overcapacity and weakening downstream demand in China.
From 2002 to 2012, China's coal industry experienced the so-called Golden 10 Years when coal prices kept rising and the industry spawned thousands of billionaires. The high profitability also attracted many new investors to the coal-mining sector.
However, with concerns mounting over issues like air pollution, the government decided to shut small-scale coal mines and upgrade production technology to improve the environment.
This, in turn, prompted many companies to expand production capacity to avoid being eliminated, making the overcapacity problem even more severe in the industry.
Since 2012, the country's coal prices have started declining due to shrinking demand from steel mills and power stations. The rising coal imports also added to the woes of domestic companies.
Faced with a piquant situation, the government decided to step in and asked State-owned coal companies to cut production from last month to prevent price competition.
Source: usa.ChinaDaily
No comments:
Post a Comment