China's Pollution Policy to Affect Australia's Coal Industry

Researched by Industrial Info Resources Australia (Perth, Australia)--China's recent announcement to limit its imports of coal from 2015 onward has piled on more pressure for Australian coal producers this year, particularly while coal prices continue to remain low. The $60 billion coal industry is under enormous pressure, with mine closures and job losses expected to accelerate throughout the year.

China will seek to ban the burning of coal with high levels of ash or sulphur, in areas surrounding major cities, as the Beijing administration continues its battle against pollution. For the last decade, there has been a gradual slowdown of productivity within the Australian mining sector, with labor and capital costs remaining above the global average.

Unless the country is able to find itself new trading partners, there could be an economic calamity that will force smaller, more capital intensive producers to shut down their mines, while the much larger and lower-cost competitors take advantage of the situation to control the market.

As a country that is at the mercy of the world market when it comes to the global pricing of coal, Australia is now facing a period of dramatic change throughout its $60 billion coal industry. Thousands of job losses, increased costs and rapidly eroding profitability are beginning to affect the Australian metals and minerals industry.

Recently, BHP Billiton (Perth, Australia) (ASX:BHP) sacked at least 700 workers across its Queensland metallurgical coal business, as the mining company continues to axe costs. While larger companies are able to slash costs in this manner in order to better survive the oncoming economic storm, smaller competitors may find it increasingly more difficult to endure such a volatile market.

Japanese trading house Mitsui has offered some hope for the coal industry; however, after suggesting that the falling prices are more about excess supply, rather than waning demand. Mitsui is backing the expansion of higher quality Brownfield coal operations.

The Bacchus Marsh Brown Coal Mine in Victoria is one of the more expensive examples of the expansion projects that are aimed at increasing production of higher quality coal at a lower cost. Similarly, the New Acland Phase III Expansion project by New Hope Corporation Limited (ASX:NHC) (Brisbane, Queensland) will look to increase the processing capacity of the site by more than 5 million tonnes to total 15 million tonnes per year.

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Australia's coal is well above the Chinese quality requirement, but the policy change represents yet another problem in an industry that continues to face challenges. Major changes in commodity prices, declining productivity and the emergence of overseas rivals with lower production costs, such as Mongolia, Mozambique and the U.S., will all contribute to a coal industry in which Australia will be forced to evolve in order to survive.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.