China Daily today reported that there is to be a new tax on coal beginning December 1 this year. The newspaper did not report a tax rate, but said that the new tax would be on sales of the coal, rather than on production as is the case now. The existing tax is to be scrapped.

Analysts quoted by the newspaper suggested that the tax would cause a rise in coal prices of some 3%-5%.

Interestingly, the newspaper says that to the end of August, China had produced 2.52 billion tonnes of coal, for a 1.4% reduction over 2013, but sales of coal were registered at 2.4 billion tonnes. This suggests that coal inventories across plants, hubs and power stations has risen by 120 million tonnes this year. In the meantime, coal imports this year have dropped by about 5% year-on-year, so there is a definite slowdown in coal consumption. Whether this translates into a slowdown in the economy is a moot point, because China is also building the use of clean energy sources including hydroelectricity, nuclear and others.

A rise in cost of 3-5% is not likely to cause much of a change in demand patterns, especially since demand and prices are both in decline. But what’s also interesting is that the announcement from the government also talks about a 2-tier pricing system for coal. There were no details on this, but it would be interesting to see if coal for power stations for aluminium consumption are adversely affected or not.

We will keep you posted as more details emerge.