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China sets tax on low-grade coal imports; Indonesia unaffected

China has announced a 3 percent tax on imports of steam coal with low calorific value but the move will have no impact on top supplier Indonesia as a trade deal with Southeast Asian nations will ensure that those shipments continue to enjoy zero tariff.

Indonesia is the biggest seller to China of lignite, a form of low-grade coal, with its shipments accounting for 97 percent of China's total lignite imports in 2013 up to end of July.

Indonesia's exemption from the tariff means the tax would have minimal impact on China's overall coal imports. Local miners, such as Shenhua and China Coal, will need to fend for themselves as they fight against cheaper imports.

China's State Council, the country's cabinet, last week approved a plan to implement a 3 percent tariff on lignite imported from countries under the most-favoured nation trade status, according to a statement from the finance ministry.

The new tax rule came into effect on Aug. 30, according to the statement. Lignite currently enjoys zero import tariff.

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The statement did not specify what grades of lignite, in terms of heating value per kilogram, would be affected, although industry sources said Chinese customs statistics classify coal with a calorific value of between 3,800-4,200 kcal/kg as lignite.

A customs official said the new regulation will not affect exporters from Indonesia or other countries that are members of the Association of Southeast Asian Nations (ASEAN), as a China-ASEAN free-trade agreement has brought import tariffs for lignite to zero since the start of 2012.

"The 3 percent tax will only be applicable to exporters that are outside of the ASEAN group," said the official who was not authorized to talk to the media and thus did not want to be identified, adding that shippers will also need to provide a certificate of origin.

Traders said most miners and trading houses are able to provide such documents so the requirement would have little impact on shipments.

Non-ASEAN countries that export lignite to China include Australia, North Korea, Russia and Mongolia, according to customs data. Those countries account for just about 4 percent of China's lignite imports.

Beijing's move to tax imports comes after the domestic coal association lobbied the government in May to ban imports of all low-grade coal, citing the impact on local miners.

"The coal industry was making a lot of noise and wanting Beijing to help the local miners but the government knows that Chinese miners need to be more cost effective," said Cao Zhongfang, an analyst with industry portal SXCOAL.com.

China imported 187 million tonnes of coal, including lignite, in the first seven months of 2013. Total lignite shipments stood at 35.97 million tonnes during the period, up about 12 percent from year ago.

With imported lignite currently priced at about $47 a tonne on a landed basis, the newly imposed tariff would add about 8 yuan ($1.31) a tonne to its cost, industry sources said.

Still, China's major coal producers have been slashing domestic prices since July to gain market share, in a move likely to slow import growth for the rest of the year as overseas shipments become less attractive in the top buyer and producer of the fuel.

Domestic coal, with a heating value of 5,500 kcal/kg, fell 7 yuan from a week ago to 546 yuan ($89.21) per tonne, according to the Bohai-Bay Rim Steam Coal index. Prices have already dropped 14 percent this year.

Source: Reuters