New Regulations to Affect Coal Shipping to China and Indonesia?

Coal shipping to China and Indonesia may likely to feel the impact of the new regulations passed by respective governments aimed at reducing air pollution and increasing support for the domestic coal industry, indemnity insurer Skuld said citing correspondents from the region.

Under the Chinese regulations, which come into effect from 1 January 2015, the sale and import of coal with ash content more than 16% and sulphur content higher than 1% will be banned in certain densely populated cities of China, such as the cities around the Pearl River Delta, the Yangzte River Delta and some northern cities including Beijing, Tianjin and Hebei.

Furthermore, the ash and sulphur content will be limited to 20% and 1% respectively for coal that will be transported for more than 600 km from the site of production or the receiving port.

Indonesia, which is the largest exporter of thermal coal in the world, has also taken steps to lower the coal output, limiting licenses for mining and export and decreasing the production target by 6%, from 421 million tons in 2013 to 397 million tons this year.

According to Skuld, overall, there is some confusion following the new regulatory measures from both Indonesia as well as China with respect to what can be exported and imported as of 1 January 2015.

“With respect to the export of Australian coal to China, which at present is estimated to consist up to 80% of cargoes which may exceed the upcoming sulfur and ash content limits, the change may at first seem to suggest a dramatic change. The impact may be tempered, however, because coal can be processed or ‘washed’ to meet the new ash specifications, although this process will increase the cost of production and it remains to be seen whether China would be willing to pay extra for the low ash product,” Skuld said.

Additionally, Australia and China have signed a free trade agreement in November 2014, under which a 3% Chinese tariff on coking coal is to be scrapped immediately while a 6% thermal coal tariff will be phased out during the next two years. The outlook is therefore subject to a number of factors, Skuld said.

“On the other hand, coal exports from Indonesia to China are unlikely to be significantly affected by regulation on the Chinese side given that Indonesian coal is likely to meet the sulphur and ash requirements. Indonesia already has a free trade agreement in place with China, so the new coal tariffs will not affect their exports to a great extent,” the insurer added.

However, according to Skuld,  shipowners should start to ask for more detailed cargo specifications when fixing vessels and charterers / traders should be ready to know what these answers may be to such questions. The alternative is to risk delays and disputes if later an issue is raised about the cargo, either by regulators in Indonesia or in China.

In line with that the following items should be checked:

1. is the cargo being supplied by a properly licensed mining entity (be it in Indonesia or elsewhere)
2. does the cargo come with a valid export license, not just valid at the time it is issued but valid for the time of the proposed shipment
3. what are the importing country’s cargo specifications (particularly in China) with respect to ash and sulphur content as well as its calorific value
4. is the cargo destined for use in any of the cities / regions affected by the most stringent requirements in China
5. will the cargo consigned to China be used within 600 km of the port in which it is discharged
6. if the cargo will be used further than 600 km from the Chinese discharge port, does it meet the requirements for such types of cargoes