Coal struggles set to continue

Posted 11 January 2014 by The Mining Advocate, in News

Experts have highlighted an oversupply of coal.
Photo: Daimen Carty

Analysts are flagging a lacklustre year ahead for the industry, writes Bruce Macdonald.

Experts agree there is a global oversupply of thermal and metallurgical coal which has pushed prices down, with the glut unlikely to ease as Queensland producers ramp up exports through production efficiencies.

The latest Federal Bureau of Resources and Energy Economics (BREE) quarterly report said new mines coming online over the past few years had entered an environment where demand growth has moderated.

BREE’s report also pointed to the rapid increase in the trade of low rank Indonesian thermal coal which has placed additional downward pressure on prices.

For 2014, BREE is forecasting that the benchmark price for thermal coal will settle around $US89 a tonne.

International banking group Goldman Sachs said seaborne prices near marginal costs of production suggested that most thermal coal growth projects would struggle to earn positive returns for their owners.

But the company wasn’t predicting the end of thermal coal, saying that demand would continue from China and India.

Another international banking organisation, Citigroup, was predicting global oversupply of metallurgical coal of about 8.5 million tonnes, or about 3 per cent of global demand, last year.

Prices of metallurgical coal fell about 20 per cent in Australia last year but industry analysts are predicting a price per tonne of around $155 driven by Asian buyers after trading at $140 last September. In the December quarter, metallurgical coal traded at $152 per tonne.

The Goldman Sachs report said that the glut would continue to at least 2015 and Chinese analysts are forecasting a thermal coal price of $US85 a tonne in the foreseeable future, close to the BREE estimate.

On a brighter note for the export industry was the fall in the Australian dollar which recently slumped below 90 cents to the US dollar.

Energy Economics’ Central Queensland Coal Railing Forecast is predicting significant increases in tonnages from 182.3 million tonnes in fiscal 2013 to 219.7 million tonnes in fiscal 2017, an increase of 37.4 per cent over the four-year period.

Coal railings to domestic customers in Queensland are expected to increase by 1.9 million tonnes over the same forecast period.

Coal demand in Queensland has fallen in recent years, according to the report, as gas-fired and renewable energy generation capacity has impacted load factors at coal-fired power stations.

But the report added that a recovery in domestic coal demand is based on forecast strong growth in electricity consumption and an assumption that domestic gas prices will increase toward export parity levels from Curtis Island off Gladstone, where three LNG plants will be exporting in 2016.

Queensland’s coal exports are comprised of 72 per cent metallurgical coal and 28 per cent thermal coal.

Energy Economics said global demand for metallurgical coal imports was forecast to grow from 312 million tonnes in 2013 to 394 million tonnes in 2017, an average growth of 20 million tonnes per year over that period. Thermal coal global imports are predicted to grow from 956 million in 2013 to 1144 million tonnes in 2017, an average annual increase of 45 million tonnes.

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