Australia produces higher quality thermal coal than its export competitors, a point of difference that will see the struggling sector benefit if China pushes ahead with plans to lift import standards.
According to reports from news agency Platts and The Australian, draft regulations have been released to the local coal industry by China's National Energy Administration banning the import and domestic delivery of poor-quality thermal coal.
The regulations which ban coal with a net calorific value of 4540 kilocalories per kilogram or less, would favour Australian coal at the expense of our main coal competitor Indonesia.
But it doesn’t take out coal players like Russia and America who also produce high quality coal at a cheaper price.
Russia also has the added benefit of lower transport costs, being able to utilise rail haulage to move large quantities.
Some analysts say there is also a chance Chinese domestic production could fill the void.
Macquarie Bank said that while this measure has been floated before, domestic coal producers were supportive and previous concerns raised by utilities now appear to be silenced.
"If executed, this legislation could be the market-changing catalyst thermal coal has been desperately seeking," Macquarie said.
"Implementation in some form is probable rather than possible."
The move to regulate quality standards is thought to be driven by rising pollution concerns, and a desire to protect the profits of large Chinese coal producers from lower-priced imports.
NSW and Queensland black thermal coal exports generally have an energy content above 5500 Kcal/kg, which compares favourably to Indonesian coal which has an estimated range of between 4200 and 5200.
Macquarie said if the regulation measures go ahead, about half of Indonesia’s coal exports or around 50 million tonnes could either flood other markets or be forced to slash production.
Under the terms Australian coal would potentially be required for blending with Chinese domestic coal which would have a positive impact on prices.
Recently Australia’s coal industry has been under mounting pressure, struggling to compete with lower production cost countries, resulting in jobs being slashed across the NSW and QLD coal districts.
Earlier this year Australian Mining reported the country’s coal sector continued to battle increasing operation and labour costs, facing strong international competition and a stubbornly high Aussie dollar, which this week has dropped below parity delivering bigger miners some relief.
Nikki Williams, CEO of the Australian Coal Association, said earlier this year that the Australian coal sector is at "a terrible junction where not only has the international market come off in terms of prices, but our costs and productivity have gone to a terrible place".
It was only five years ago that Australia was considered one of the most economical places to produce coal in the world: At the start of 2013 Australia was labelled a high cost producer at $176 a tonne; at the time the rest of the world was sitting at around $106 a tonne.
Late last year American coal conglomerate Alpha Natural Resources even credited Australia's rising costs for the US’ boost on the global coking coal market.
"The fact is that their cost inflation has been so rapid that it is actually improving the US' relative position in the global seaborne metallurgical market," the group’s vice-president of investor relations, Todd Allen, said at the time.
Allen said that recent cost inflations have far outstripped that of the US and Canada, attributing the rising costs to changes in federal and state government regulations and the inflated cost of labour.
Macquarie said that in the short term the direct price effect from Chinese regulation changes wouldn’t be seen but the end result should benefit higher quality coal producing countries like Australia.
"In addition, it helps raise the prospect for further Chinese investment in higher-quality overseas assets, just at the same time as the Koreans are taking the same approach," the company said.