Coal news and updates

Australia to tighten grip on coking coal as U.S. rivals suffer

Australia is set to boost its dominance of the global trade in steel-making coal, as cost cutting and better margins due to a slide in the local dollar stoke a rise in production and put pressure on U.S. rivals to cut output.

Top exporter BHP Billiton , which along with Japanese partners Mitsubishi Corp and Mitsui & Co supplies nearly a quarter of globally traded coking coal, will be the biggest beneficiary.

“As China’s import flows stabilise and higher-cost North American production exits, BHP Billiton will be left as the dominant price-setting player on the supply side,” Morgan Stanley analysts Tom Price and Joel Crane said in a note.

Commodity prices have plunged over the past three years as demand in China has dropped, and the two key steel-making ingredients, coking coal and iron ore, have suffered the most.

Coking coal prices have tumbled 75 percent from a peak of $330 a tonne in 2011, mainly due to a near one-third increase in Australia’s exports from new mines that were approved at the height of China’s demand boom.

Steel demand has since fallen off in China and Japan as growth has slowed and the Chinese property market has softened.

The World Steel Association last week forecast that China’s demand for finished steel products would drop 3.5 percent in 2015 to 686 million tonnes and fall a further 2 percent in 2016.

Despite the weaker outlook, coking coal producers in Australia are maintaining or boosting their output, shielded by an 11 percent slide in the Aussie dollar this year that has enhanced the impact of cost-cutting since coal is priced in U.S. dollars.

That makes it worthwhile to produce as much as possible of any form of coking coal, whether it is hard, semi-soft or pulverised coal injection (PCI) material, which all fetch more than thermal coal, used in power stations.

“We’re minded to produce every tonne of PCI and semi-soft we can because that’s where there’s a healthy margin,” said Paul Flynn, managing director of Whitehaven Coal, which started exporting from a new mine, Maules Creek, earlier this year.

FIRMER HOLD

Unlike iron ore, where the market is being crushed by new supply from both Australia and Brazil, coking coal is dominated solely by Australia, the source for around 60 percent of global trade.

That grip is set to tighten, with Australia’s official forecaster seeing coking coal exports rising by 8 million tonnes over the two years to 2016, while it sees U.S. exports dropping by 6 million tonnes over the same period.

Cuts are expected to come from the United States, where coal companies such as Walter Energy, Alpha Natural Resources and Patriot Coal face higher costs than Australian rivals and have been battered by sliding coal demand due to the shale gas boom. This has left some with little choice other than restructuring to avoid bankruptcy.

BHP coal chief Mike Henry said last month there were no indications of a price pick-up in the immediate future, but he was confident of an improvement in the medium term, especially as China was not self-sufficient in coking coal.

Analysts are split over how quickly cuts will help boost prices. Morgan Stanley analysts expect prices to improve in the next 12 months, while Australia’s Department of Industry and UBS see no upturn until 2017.

Morgan Stanley sees hard coking coal contract prices bottoming this year at an average of $90 a tonne and rising to $95 in 2016. UBS expects the average price to bottom in 2016 at $91 a tonne and rise to $104 in 2017.

“While market rebalancing continues … more is needed as seaborne demand faces structural headwinds,” UBS said in its quarterly miner’s price review on Oct. 9.

source: http://www.hellenicshippingnews.com