In a 3 July report, MiningNews said
major miner, AngloAmerican, was eyeing
further cuts to its Australian coal
operations, having already reportedly put
four Australian coal mines up for sale as
part of aAUS$3 billion divestment plan.
In its June quarter report, the
Australian government’s Department of
Industry and Science said the nation’s
resources and energy export earnings had
declined by an estimated 11% in fiscal
2015 toAUS$174 billion, with softening
prices expected to weigh on export
earnings.
While it forecasts a 2.2% rise in export
earnings in fiscal 2016 toAUS$178 billion,
it said this would be achieved through
increased volumes and a depreciating
Australian dollar.
The report said metallurgical coal spot
prices declined substantially in 1H15,
“reflecting surplus supply, lower
demand and lower production costs that
reduced the price required for operations
to remain viable.” Spot prices averaged
around US$95/t in the first six months of
2015, down 18% on their level in 2014,
with contract prices also dropping.
Despite announced plans of reduced
output, “the market is forecast to remain
oversupplied until demand growth
recovers and announced production cuts
materialise,” it said. The department said
global trade of metallurgical coal would
contract by around 3% in 2015, driven by
lower import demand from China, but
should recover to rise by 1.4% next year.
Nevertheless, Australia produced an
estimated 188 million t of metallurgical
coal in fiscal 2015, up 4.3% on the
previous year. Despite announced mine
cutbacks, increased production from
recently completed projects, such as
Maules Creek, is expected to see
production rise by 2.8% in fiscal 2016 to
193 million t. Exports are predicted to rise
by 3% to 191 million t, but earnings could
fall 7% toAUS$20 billion, the department
said.
The department was similarly bearish
on thermal coal, describing it as “plagued
by oversupply despite announced
reductions in capacity worldwide.”
Newcastle FOB prices began 2015 at
around US$62/t but steadily declined to
US$54 in mid‑April, before rallying to
around US$60 amid surplus supply and
reduced import demand fromChina.
Despite some announcements of
production cuts, the forecaster said spot
prices would remain “under pressure” in
2015 and into 2016. While benchmark
prices for the Japanese fiscal 2015 year
settled at US$67.80/t, well up on the then
spot price of US$57/t, the department
said it would likely slip to US$62/t for the
following fiscal year, “underpinned by
continued oversupply and an assumed
depreciation of theAustralian dollar.”
Australian thermal coal production is
estimated to have barely changed at
246 million t in fiscal 2015, with a 1.4%
increase to 249 million t forecast for the
following fiscal year. Exports are expected
to rise by 0.4% to 202 million t in fiscal
2016, helped by resilient demand in key
markets, including Japan, South Korea
and Taiwan, although earnings could fall
6% to nearlyAUS$15 billion on lower
prices.
The eastern state of Queensland has
ledAustralia’s coal charge, with exports
anticipated to have set a record high of
220 million t in fiscal 2015, up 5% from the
previous year on the back of solid
demand fromChina, Japan, India and
South Korea.
Further south, the state of
New SouthWales (NSW) grew exports by
5% to 133 million t in fiscal 2015, with
lower Chinese shipments but rising
exports to other Asian countries, along
with its biggest market: Japan.
WoodMackenzieAnalyst,
Brent Spalding, said there had been a
“significant” reduction inAustralian coal
projects amid weak prices, although a
number were still going ahead.
“Some of the larger thermal coal
projects we see being developed in NSW’s
Sydney Basin over the next five years
include Yancoal’s Moolarben surface and
underground mines andAnglo
American’s Drayton South,” Spalding
said.
“In Queensland, Adani is also
progressing its Carmichael Galilee Basin
coal project, which will have a combined
marketable production rate of
approximately 40 million tpa. The Galilee
Basin still needs rail and port
infrastructure to be developed before coal
exports can proceed. We expect there will
only be sufficient global thermal demand
to bring on Galilee Basin coal by 2020,” he
continued.
“For metallurgical coal, we expect
Q Coal to develop its Byerwen project and
anticipate further production increases at
some of the BHP BillitonMitsubishi
Alliance Queensland mines in the Bowen
Basin.”
On 8 July, the AUS$1.2 billion
Shenhua Watermark mine in NSWwon
federal government approval, despite
political opposition. Worryingly for the
industry’s future, exploration has
slumped from a peak of AUS$227 million
in 3Q11 to just AUS$81 million in 2Q14,
according to Morningstar’s Hodge. In
1Q15, coal exploration dropped by more
than 44% to just AUS$34 million, with
drilling contractors, such as
Boart Longyear, noting “historically low
levels” of activity.
Meanwhile, the industry’s battle with
environmental activists has been
manifested in highly publicised
divestments of resources shares by
organisations, such as theAustralian
National University, along with a public
relations war over the fate of national
icon, the Great Barrier Reef. In July, the
Queensland Resources Council (QRC)
welcomed the decision by UNESCO’s
World Heritage Committee not to place
the Reef on its ‘in danger’ list following a
campaign by environmentalists against
further coal exports.
Earlier, inMarch, the recently elected
Queensland Labor government brokered
a compromise deal withAdani and GVK
concerning theAbbot Point Coal Terminal
– a major flash point in the debate over
the Reef and the impact of the newGalilee
coal projects. Adani’s Carmichael mine
and related rail and port projects are
expected to inject AUS$22 billion into the
Queensland economy, a major boost to
cash-strapped state coffers.
India to the rescue?
While Morningstar’s Hodge warned of a
“slow grind” of rationalisation, mergers
and closures to balance supply, other
analysts were more upbeat concerning
the industry’s prospects, particularly due
to the rise of India and other Asian
demand.
According toAustralia’s Department
of Industry and Science, India’s plans to
rapidly expand steel production should
see imports of metallurgical coal rise by
13% in 2015 and another 2.7% in 2016 to
18
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World Coal
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August 2015
