China Plan Puts High-Sulfur Coal From U.S. at Risk, XCoal Says

China’s plan to ban imports of power-station coal with relatively low heating value and high sulfur content may cut shipments of U.S. coal into the country, an American executive said.

“Many Chinese customers can consume higher-sulfur coal without polluting the environment,” Ernie Thrasher, chief executive officer at XCoal Energy & Resources LLC, a Pennsylvania-based exporting company, said in e-mail on June 10. If the ban is implemented, it would be detrimental to higher-sulfur coal coming from the U.S., he said.

China may ban purchases of coal with a heating value below about 4,540 kilocalories a kilogram on a net-as-received basis, sulfur content above 1 percent and ash above 25 percent, according to an initial draft obtained by Bloomberg News. The standards may be eased, Australia & New Zealand Banking Group Ltd. said in a note on June 5.

The U.S. ships about 4 million metric tons of higher-heating value and high-sulfur power-station coal into China every year, according to Thrasher.

High-heating value U.S. coal from Central Appalachia has an average sulfur content of 0.95 percent, while low-calorific grade Powder River Basin has average sulfur content of 0.34 percent, Deutsche Bank said in a May 9 report.

Fewer Exports

The U.S. exported about 30.5 million tons of coking and thermal coal into the Asia-Pacific region from April 2012 to March 2013, according to the Department of Commerce. That was up from an estimated 23.2 million tons in the previous year as natural gas displaced coal and warmer winter temperatures in the U.S. cut domestic demand for the fuel.

“Mining companies exported their coal to liquidate inventory,” Thrasher said. “That was an anomaly that occurred from February 2012 to June 2012.”

Coal exports from the U.S may fall by 15 percent to 20 percent from April 2013 to March 2014, down from an estimated 115 million tons in the previous 12 months, Thrasher said. Shipments of the fuel from the U.S. to Asia will also drop in the same period, he said.

Lower-sulfur coal, which has higher production costs, will struggle to keep its share of the Asian market because of the current price level, he said.

Coal prices have fallen by more than half since they peaked in mid-2008 amid slowing Chinese imports and rising shipments from Indonesia, Colombia and the U.S.

Coal at the Australian port of Newcastle, Asia’s benchmark price, dropped 40 cents to $86.40 a ton for the week ended June 7 from the previous week, data from IHS McCloskey show. The price reached a record $192.50 a ton in July 2008 and averaged $94.29 a ton last year.

Xcoal plans to export about 18 million tons of coal from April 2013 to March 2014, up from about 14 million tons in previous year, Thrasher said. “We don’t know if this goal will be achievable due the market conditions we are experiencing in Europe, South America, India, Japan, Korea, China and Taiwan,” he said.

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