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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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This Just Sent Shockwaves Through The Coal Market

Breaking news: the thermal coal market is reeling this week. After the world's biggest consumer of the commodity announced some sweeping changes to its rules.

That's of course China. Where officials have finally moved on an import ban for shipments of certain types of coal coming into the country.

Related: Why King Coal Will Keep Its Crown

A notice of new rules around the coal ban was officially posted on the website of the National Development and Reform Commission on Monday. Here's how the ban breaks down (summary courtesy of the keen China-watchers at the Black China blog).

There are three levels to the ban. Under the first level, coastal Chinese cities are restricted from importing coal with sulfur levels above 1%, and ash content greater than 20%.

Level two prohibits the transport of coal for over 600 kilometres inland if it has a calorific value of 3,940 kcal/kg or less. Or if the coal has sulfur content exceeding 1%, or ash content above 20%.

Level three applies a total ban across the country to coal with a sulphur content greater than 3% and ash content greater than 40%.

The new rules are interesting in a couple of ways.

First, as expected, authorities largely went after sulfur and ash content--rather than overall calorific value, as was originally the plan according to reports. This was apparently in response to objections from coal consumers. Who felt that an outright ban on low heat-content coal would make it too hard to find supply.

But the government didn't totally let buyers off the hook here. Coastal cities will still be able to use all varieties of heat-content coal. But inland consumers will be restricted to higher-calorie products.

Analysis is that these rules will hit Australian coal the hardest. Although there are still plenty of mines in that nation producing coal that would pass spec.

A final part of the rules is an outright ban on low-calorie lignite coal, with a sulfur content greater than 1.5% and ash greater than 30%. Which could affect Indonesia--currently the largest supplier of lignite to China.

Related: Why China’s Insatiable Appetite For Coal Has Likely Peaked

The ban comes into effect on January 1. But it appears imports could start dropping during the fourth quarter, ahead of the rules being implemented.

Whatever the case, the global coal market has been changed in a big way.

Here's to banning the burn,

Dave Forest

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