PERTH (miningweekly.com) – The Minerals Council of Australia (MCA) on Wednesday urged the resources sector not to overreact to China’s recently announced low-quality coal ban.

China’s National Development Reform Commission has instituted a ban on burning coal with an ash content of more than 40%, and a sulphur content of greater than 3%.

Furthermore, larger cities like Beijing would be restricted to using even higher-grade coal, of no more than 16% ash and 1% sulphur.

It was expected that the new legislation would increase the demand and import of higher-quality coal.

Advisory firm Wood Mackenzie (Woodmac) estimated that some 39-million tonnes of high ash coal were currently being exported from Australia, with diversified miners Glencore, BHP Billiton and Rio Tinto leading the export pack.

However, Woodmac noted that the proposed coal quality restrictions would not rule out continued exports from Australia, as exports to China could be processed to meet the proposed ash requirements. Furthermore, the sulphur restrictions would prove to be nonbinding for Australian producers, as all but one of the high ash coal assets had a sulphur content of less than 1%.

The processing of coal would come at a cost, Woodmac warned, as lower ash products had higher processing costs, and an associated reduction in yield would also be experienced as less marketable output would be produced.

“We estimate an average cost increase of around A$16/t, with a minimum of A$1/t and a maximum of A$27/t,” Woodmac stated.

MCA coal executive director Greg Evans said on Monday that reports that the draft legislation would impact Australia’s coal industry were misleading and unnecessarily alarmist.

“There is nothing in the information which suggests that Australian coal exporters will be disadvantaged and we are confident that we can meet the proposed specifications,” Evans said.

“Australia is fortunate to have reserves of high-quality black coal, which will continue to be in strong demand from established and emerging markets, including China.”

Evans pointed out that the main impact of the new legislation would be on brown coal or lignite, which Australia did not export, as well as on low-quality domestic black coal.

To the extent that the new legislation would impact imports of black coal destined for northern cities, Evans said that this would only affect small-scale coal use, not large-scale power plants or other industrial users.

“China remains a valued coal trading partner with Australia and its demand for our high-quality thermal coal resource will continue. The future for Australia’s A$2.7-billion annual thermal coal trade with China remains strong,” Evans reiterated.

The MCA’s positive outlook on China’s demand for Australian coal was mirrored in the most recent data from the Bureau of Resources and Energy Economics (BREE), which indicated that Australia’s thermal coal exports to China had increased by 13.5% to 12.8-million tonnes during the second quarter of the year.

Evans pointed out that coal currently accounted for 80% of China’s electricity generation, and was expected to dominate the country’s energy mix until at least 2035.

BREE has forecast that Australian thermal coal exports would grow at a compound annual growth rate of 5.1% between 2012/13 and 2018/19, rising from 182-million tonnes to 244-million tonnes during this period.