By Fayen Wong
SHANGHAI (Reuters) - China may impose higher quality standards for imported and locally traded coal to cut air pollution, two sources said, in a move that could slash imports while boosting the fortunes of a faltering domestic industry.
The National Energy Administration (NEA) held a meeting with major state-owned coal producers earlier this month to discuss the new standards, one of the sources said, adding top producer Shenhua Coal, China Coal, Datong Coal, Shanxi Coking Coal Group and Jizhong Energy Group were among firms that took part.
China's government, led by new leader Xi Jinping, has vowed to tackle the country's festering pollution crisis, which has become a flashpoint for growing protests in China.
The NEA now proposes to have for imported coal a minimum calorific value of 4,540 kcal/kg, a maximum sulfur content of 1 percent and 25 percent ash on a net-as-received basis, said a source at a major state-owned coal miner.
The proposed requirements for locally traded coal will be more lax, with a minimum heating value of at least 3,584 kcal/kg, a maximum ash and sulfur content of 40 percent and 3 percent, respectively.
"The main aim of the proposal is to reduce pollution. I think part of it is also to help support the local coal industry," said a source with a large state-owned coal miner, which attended the meeting.
NEA could not be immediately reached for comment. It was not immediately clear when a final decision on implementing the standards will be taken.
But if adopted, the proposals will hit the world's top thermal coal supplier Indonesia, from where exports of coal with low heating value to China have swelled since late last year. It could also affect sellers of U.S. steam coal with high sulfur content, a major cause of air pollution.
China imported about 54 million tons of lignite in 2012, a low-grade coal with calorific value lower than 4,500 kcal/kg, most of which were from Indonesia.
But domestic coal prices would get a boost as utilities would be forced to use more local supplies. Higher Chinese prices and requirements for better coal specifications could also prompt local utilities to buy more from Australia or South Africa.
"It could reduce imports by between 60-70 million tons of coal a year," said Luther Lu, an analyst at Fenwei Energy Consulting Corp.
Benchmark coal prices with energy value of 5,500 kcal/kg stood 611 yuan a ton as of May 22, down 0.2 percent from a week earlier, according to data from the China Coal Transport and Distribution Association.
LOBBYING BY COAL MINERS
Plans to raise the bar for overseas coal came after major miners lobbied with the government to curb imports earlier this year, sources said, after a near 30 percent spike in imports last year, combined with slower consumption growth, prompted a steady fall in domestic prices.
Many Chinese coal companies, already battling rising costs, climbing debt and a surge in overdue payments, have also begun to suffer financial losses.
"This is a clear move to protect the coal industry. If the authorities were genuinely concerned about pollution, they could force all coal-fired power stations to be fitted with or upgrade their desulfurization units," said a Beijing-based trader.
"Also, sulfur and ash are the main culprits for air pollution. It has nothing to do with calorific value."
Shenhua, China's top coal producer which invested millions to develop massive coal mines in Inner Mongolia, produces vast amounts of lower calorific value thermal coal which is between 4,500-5,500 kcal/kg.
"The utilities and local trading firms are going to get hurt since many of them have been blending low-grade Indonesian coal with high quality ones to lower their costs," said a Shenzhen-based trader.
(Editing by Muralikumar Anantharaman)