China sets tax on low grade coal imports

The Chinese Government has announced a 3% tax on imports of thermal coal with low calorific value, following a meeting of China’s State Council.

The announcement follows weeks of posturing as to whether the tax would be introduced or not. Many market analysts were concerned the tax would negatively impact Indonesian exports of thermal coal, with the country accounting for 97% of China’s lignite imports from January to July 2013.

There remains uncertainty over the impact the tax will have on Indonesia. Reuters has reported sales of coal from Indonesian miners, such as Bumi Resources and Adaro Energy, could be dented by the tax, while the tax could also spark defaults of existing contracts. However, a trade deal with Southeast Asian nations has also been cited as ensuring Indonesian shipments continue to enjoy zero import tariffs.

Tariff uncertainty

Trade sources have questioned whether China can legitimately impose the tax on Southeast Asian imports. This uncertainty is due to a free trade agreement that was signed between China and the Association of Southeast Asian Nations (ASEAN), which brought import tariffs for lignite to zero since the start of 2012.

Because China remains a signatory of the FTA and Beijing has promised these zero import tariffs, some traders do not believe China can arbitrarily renege on this promise and begin taxing imports of low calorific value coal from these countries.

Chinese domestic coal

If Indonesia is exempted from the tariff, the tax will have minimal impact on China’s overall coal imports. Local miners, such as Shenhua and China Coal, will still face competition from cheaper imports. It is these domestic companies that have pushed hardest for the government to impose a ban or tax on low-grade coal.

Chinese companies cite the impact of cheap imports on local miners as a reason to introduce some limitation on the import of foreign coal.

Lignite shipments

Cao Zhongfang, an analyst with industry portal SXCOAL.com, suggested Chinese customs offices “may require importers to provide a certificate of origin for all lignite shipments” with those able to supply such documentation being “exempt from the tax.”

However, Cao Zhongfang notes smaller Indonesian miners and trader may have trouble providing the necessary certificates on short notice, meaning “a lot of shipments could be held up at the ports.”

The statement from the Chinese authorities regarding the tax did not specify what particular grades of lignite, in terms of kcal/kg, would be affected.

Chinese customs statistics reportedly classify coal with a calorific value of between 3800 – 4200 kcal/kg as lignite.

China imported 187 million t of coal, including lignite, in the first seven months of 2013. Total lignite shipments stood at 35.97 million t during this period, according to Reuters. This figure represents a 12% increase from the same period in 2012.

The cost of imported lignite currently stands at about US$ 47/t. The new tariff would add roughly US$ 1.31/t to this cost.

Edited from various sources by Sam Dodson

Read the article online at: https://www.worldcoal.com/coal/03092013/china_sets_tax_on_low_grade_coal_imports_07/