China to further tighten coal quality controls on 1 July

China's move to tighten coal quality, effective 1 January 2015, led to a significant decline in China's coal imports in Q1. 

Coal imports consumed by the domestic market were limited to coal with ash content below 40% and sulphur content below 3%. Testing at ports initially took 15 days, resulting in a cargo pile-up. Due to these restrictions, China's Q1-2015 imports from Indonesia fell 47% y/y to 19mt, the lowest for a quarter since Q1-2011. 

Indonesia was China's largest coal supplier (106mt) in 2014. China is tightening its coal quality controls further, with effect from 1 July 2015. 

The stricter criteria now extend to all saleable coal - either domestically produced or imported - in the China market, with the new specifications even stricter than those enforced on 1 January. 

Coal quality is likely to be tested at ports and at the point of utilisation, namely at power utilities and chemical industries. We see this as a broadbased approach to ease China's pollution woes and reduce carbon emissions, rather than an effort to further restrict coal import volumes to rebalance the domestic oversupplied market. 

As such, while shipment delays are expected, China's imports from Indonesia are not expected to decline significantly as a result of stricter coal quality control.