China's proposed ban on imports of low calorific value thermal coal will have a serious impact on Indonesian sub-bituminous coal prices, industry sources said Thursday.
Platts, quoting well-informed sources, reported this week that Beijing may impose the ban on imports of thermal coal with a calorific value of less than 4,540 kcal/kg on a net-as-received basis, and on thermal coal with a sulfur and ash content of more than 1% and 25%, respectively, as early as next week.
"If implemented, it will be catastrophic for prices of Indonesian low rank coal," a mid-sized Indonesian coal producer said.
A Singapore-based coal trader said he believes that if the ban is immediately imposed Indonesian sub-bituminous coal prices will drop by at least $5/mt "considering the volume of low rank coal exported to China at the moment."
A second mid-sized Indonesian coal producer said sub-bituminous coal prices will be under severe pressure once the ban is imposed.
He also said the Indonesian domestic market is not big enough to absorb the volume of low calorific value coal that Chinese coal buyers will no longer be able to import.
Market sources said India would likely take advantage of a future ban to push for low prices.
Although India requires massive volumes of low calorific value coal, which is mainly imported from Indonesia, to run its power plants, it is not clear whether India's requirements would be big enough to offset China stopping imports.
"I am not sure if India can absorb all -- there are mixed views about this. Some say India will sort out its domestic production to be more self-reliant but others say the supply-demand scenario for coal will widen," the Singapore-based coal trader said.
The first Indonesian coal producer said: "India cannot absorb all the loss of volume from China if it is a full ban. But if it is a partial ban or a ban implemented in stages, the impact maybe not be as severe."
An Indian coal trader said India would significantly benefit from the China proposal once such a ban were implemented.
"More low calorific value coal will be available. There will be an excess of coal supply and this will put prices under pressure. This will mean Indian buyers can take a very tough negotiating stance with Indonesian miners. The Indian utilities can procure very cheap coal," the Indian trader said.
In 2012, India imported about 90 million mt of coal from Indonesia, the bulk of which was sub-bituminous coals, an industry source said.
Market sources said China last year imported 65 million mt of thermal coal with a calorific value of 4,540 kcal/kg NAR.
A Philippine coal buyer said the proposed China ban, if implemented, will be beneficial for Filipino importers of sub-bituminous Indonesian coals. "The chances are good that we can get better prices for Indonesian coal," the Philippine coal buyer said.
But the second Indonesian coal producer said all would not be lost if the China ban was imposed. Indonesian low rank coal can still be blended with bituminous coal and exported to China, he said.
However, this producer said Indonesia does not produce significant volumes of bituminous coal.
The Singapore-based trader said: "By the end of a day, even if high calorific value coal is blended with low calorific value coal, there will still be plenty of low calorific value coal in the market without a home."
"The volume of high rank coal to be blended with low rank coal is not adequate," the trader added.
The initial reaction of Indonesian miners to a China ban, if implemented, would be to run their operations with more efficiency, the second Indonesian coal producer said.
But he said small miners will be hit hard by a ban, adding he foresees closures of such operation on a massive scale.
The trader said major Indonesian coal miners, which produce the majority of the country's coal, would not stop production but would have to deal with a market that may turn against their favor.
A Japanese coal buyer said the proposed China ban may be a two-edged sword -- and the effect might either be lower or higher coal prices.
He explained that if Indonesia blends its low calorific value coals with high rank materials, there would be more bituminous coals available in the market which will put pressure on prices.
Another possibility is the ban may cause domestic Chinese coal prices to rise because of the country's inability to import low rank coal and this may force the Chinese to import bituminous coal in the international markets which may cause prices of such material to rise.
