Coal news and updates

Like a pot of water being slowly brought to boil, it's taken a long time for Australian coal miners to reach the point where the pain becomes too much to bear.

 

In recent weeks a slew of announcements of mine closures, production cuts and job losses has served to underscore that ultimately the sustained low-price environment would have to result in lower output from the world's largest coal exporter.

 

So far the announced closures have been modest, but the chances are increasing that they are merely the harbinger of more cutbacks in the beleaguered coal industry.

 

The cost of producing about half of Australia's thermal coal and about 45 percent of its coking coal is above the prevailing prices, Morgan Stanley said in a report on Monday.

 

The spot price of thermal coal at Newcastle Port , an Asian benchmark, was $74.33 a tonne in the week to May 23, close to a 4-1/2 year low of $72.98 hit in March. It has lost 45 percent since the post-2008 recession high of $136.30 reached in January 2011.

 

Prices for coking coal, used in steel-making, are currently around $116 a tonne, about 35 percent of the $330 commanded in mid-2011 when supplies from Queensland state were disrupted by flooding and demand from Chinese steel mills was robust.

 

Up until recently most Australian coal miners have been trying to ride out the weak prices by pursuing a combination of output gains and cost-cutting in a bid to lower per unit costs.

 

This has probably exacerbated the problem by increasing production at a time when the global seaborne coal market is in structural surplus.

 

But now some of the miners have thrown in the towel and started to close output at higher cost facilities.

 

Glencore Plc said on May 22 it will close its Newlands underground coal mine in late 2015, opting not to extend the life of the mine, which produced 2.75 million tonnes of thermal coal last year.

 

In March, the global commodities giant said it would suspend operations at the Ravensworth underground mine, placing the facility, which produced 2.1 million tonnes of semi-soft coking coal in 2013, on care and maintenance.

 

BHP Billiton and its partner Mitsubishi said in February it would cut 230 jobs at their Saraji coking coal mine in Queensland, in a bid to improve competitiveness of the 8 million tonnes a year operation.

 

Brazilian miner Vale said on May 16 it would close its Integra coal mine in New South Wales state, costing 500 jobs, while Rio Tinto has cut jobs at its Hail Creek mine in Queensland.

 

So far these closures haven't made much impact on Australia's coal exports, although this isn't a surprise given that the process of idling output has only just started.

 

CLOSURES UNLIKELY TO BOOST PRICES

 

Shipments from Newcastle, the world's coal export harbour, did drop in the week to May 26, but total exports for the month are projected at 13.35 million tonnes, which would be the highest monthly total this year.

 

The Bureau of Resources and Energy Economics said in its March quarter report that exports of thermal coal should rise to 200.6 million tonnes in the 2014-15 fiscal year from 195.4 million tonnes in 2013-14, and those for coking coal to 178.9 million tonnes from 176.8 million tonnes.

 

These are fairly modest increases, and are unlikely to be met if the recent closures and cutbacks are the start of a trend.

 

But will mine closures in Australia serve to boost prices by removing supply?

 

The answer is most likely no, because not enough production will leave the market to alter the current over-supplied situation.

 

While imports by top buyer China have held up, dropping by only 2 percent in the first four months of 2014 compared with the same period in 2013, this is likely because prices have been cheap enough to compete with domestic supplies.

 

Overall, the forecast is for Chinese imports in 2014 to be steady near last year's level of 267 million tonnes, with modest increases for India, Japan and South Korea, Asia's next three biggest buyers.

 

But the gain in demand will be nowhere near enough to eat into the market surplus, which just increases along with any price gain as higher-cost producers in countries like the United States will export into any rally.

 

The positive for Australia's coal mining industry is that those that do weather the low price environment will emerge stronger, assuming forecasts for rising coal demand in Asia over the next decade prove accurate.

 

 

Source: Reuters