Coal news and updates

Coal carriers ride Australian exports to profit

The largest commodity carriers are poised to profit for the first time this year as Australia exports near-record amounts of coal, diminishing a glut of ships that caused rates to drop as much as 99 percent since 2008.

Costs for Capesizes, hauling 160,000 metric tons of cargo, almost tripled to $13,339 a day this year and will rise to an average of $15,450 in the fourth quarter, according to data from the Baltic Exchange and the average of six analyst estimates compiled by Bloomberg. The prediction is more than the $14,500 that RS Platou Markets AS says the ships need to break even. Investors may profit because the forecast is 8.7 percent higher than swaps traders use to bet on future freight costs.

Australian coal producers are boosting shipments because they increased export capacity at a record pace since 2008, when prices were more than double those now, according to Standard Bank Plc. The nation’s largest ports shipped 19 percent more in June than last year, indicating volumes near December’s record 31.2 million tons. Bank of America Corp., Credit Suisse Group AG and JPMorgan Chase & Co. cut their price forecasts since June, citing the glut of supply.

“The wall of supply from expansion projects in Australia will prove very challenging for coal prices,” said Marc Pauchet, a senior analyst at ACM Shipping Group Plc, a shipbroker in London. “It’s a baby step for the shipping market on its road to recovery.”
Yen Weakens

Nippon Yusen K.K. (9101) and Mitsui O.S.K Lines Ltd., the largest Capesize owners, surged in Tokyo trading this year as the yen weakened against all but one of its 16 biggest peers, boosting the value of repatriated earnings.

Shares of NYK, whose Capesizes account for 35 percent of its fleet, advanced 51 percent and will climb 2.2 percent in the next year, the average of 15 analyst estimates compiled by Bloomberg showed. Mitsui’s Capesizes represent 21 percent of its fleet and its shares will fall 1.3 percent, paring a 66 percent gain this year. The company has said it will return to profit this fiscal year because of the weaker Japanese currency.

Australia, the biggest coal exporter after Indonesia, shipped more every month this year compared with 2012 following record investment in mines and ports since the fuel reached an all-time high in 2008. While prices have slumped, producers won’t curb cargoes because they need revenue to pay for port expansion projects, according to HSBC Holdings Plc analysts led by Andrew Keen in London.
Fuel Harbor

The price of coal at Australia’s Newcastle, the world’s biggest harbor for the fuel, fell to $76.75 a ton on July 19, from a record $173 five years ago, according to data from Petersfield, England-based IHS McCloskey. The commodity will average $95 this year, 17 percent less than in 2012, Morgan Stanley estimates.

Credit Suisse cut its 2013 estimate for Newcastle coal by 4.4 percent to $86 a ton on July 3 and Bank of America reduced its prediction by 6.5 percent to the same level on June 20. JPMorgan pared its forecast for next year’s average price by 5 percent to $90 on June 26.

Shipments from ports accounting for about 90 percent of Australian coal exports reached 28.9 million tons in June, from 24.2 million tons a year earlier, data compiled by Bloomberg show. Australia’s annual exports will increase 9 percent to 185.9 million tons in 2013, representing 37 percent of global growth in seaborne supply, according to Clarkson Plc, the world’s largest shipbroker.

While Capesize rates are now the highest for this time of year since 2009, the average since the start of January is the worst on record. Almost all the gains have come since mid-June, mirroring the increase in Australian coal shipments. Coal is the third-biggest seaborne commodity, after oil and iron ore.
Running Costs

Rates haven’t been high enough to meet basic running costs including crew, insurance and repairs of about $7,758 a day, according to Baltic Exchange data and estimates from Moore Stephens LLP, a consultant to the industry in London. Platou’s break-even figure also includes expenses such as debt financing.

Continued growth in Australian exports may be curbed as miners cancel expansion plans. The government estimates that about A$150 billion ($146 billion) of mine projects were delayed or scrapped in the past year. Glencore Xstrata Plc (GLEN), the biggest shipper of thermal coal burned in power plants, halted work on the Balaclava Island export terminal in Queensland in May. About 15 percent of Australian coal is extracted at a loss below $90 a ton, according to CIMB Group Holdings Bhd.
Oil Tankers

The capacity glut in Capesizes extends across most of the merchant fleet, which the Round Table of International Shipping Associations says hauls about 90 percent of world trade. Rates for the largest oil tankers are also averaging less than operating costs this year, data compiled by Bloomberg show. The ClarkSea Index, a gauge of industrywide earnings, is poised for its worst year since at least 1990.

Owners are also benefiting because the expansion of the fleet is slowing. Outstanding orders at shipyards are now equal to 16 percent of existing capacity, from more than 99 percent in 2009, according to data from IHS Fairplay, a Redhill, England-based research company.

Gains in other cargoes may also offset any weakening in Australian coal exports, with Clarkson predicting a 5 percent climb in dry-bulk commodity shipments to a record 4.27 billion tons this year. Iron-ore exports, the biggest source of demand for 1,000-foot-long Capesizes, will increase 6 percent to 1.18 billion tons, also an all-time high, the shipbroker says.

“Everyone is getting hopeful for the second half of the year,” said Jeff McGee, a consultant who formerly led the research department at Poten & Partners Inc., a New York-based shipbroker. “The focus has been on iron ore, but coal is helping to balance the Capesize market too.”

Source: Bloomberg