Australian coal prices force cut in producers’ export tonnage at PWCS terminals
Weak coal prices in Australia have pushed the majority of Hunter Valley coal producers to voluntarily reduce contract tonnages going through the two Port Waratah Coal Services (PWCS) terminals at the port of Newcastle, PWCS said on Thursday.
Throughput at the Carrington and Kooragang terminals is running at a rate of about 113m tonnes/year, according to the Hunter Valley Coal Chain Coordinator's latest monthly report. This is well below the contracted 142m tonnes/year Hunter Valley producers - the country's largest producer region for thermal coal have in place.
PWCS said capacity will be redistributed among customers so throughput will remain 142m tonnes/year.
Lower than previously forecast production because of the weakness the swaps and physical FOB Newcastle markets was one driver to the change, PWCS said. A shortfall in rail freight capacity was another.
"Coal producers who do not require all tonnages previously contracted for have been able to reduce their exposure to ship-or-pay obligations," said CEO of PWCS Hennie du Plooy, referring to producers' commitment to pay for the capacity they nominated at the terminal whether they use it or not.
"I think this is a necessary consolidation," said one Europe-based trader. He added Australian and Indonesian producers are coming under severe pressure, with some mines likely to be closed this year.
The admission casts doubt over plans to build a fourth terminal as current capacity appears more than adequate for now. PWCS said it will continue to seek approval to develop the extra terminal, however. Last June PWCS said it was seeking approval to build the new terminal so it can handle up to 70m tonnes/year. The plan also had room to develop to a capacity of 120m tonnes/year.
"Producers who still require greater capacity for coal handling and were expecting to rely upon terminal four now have access to existing capacity, increasing certainty of access and timing," du Plooy said about the redistribution.
PWCS is obliged to develop capacity at the port of Newcastle under the long-term commercial framework it signed up to in 2009 along with the government of New South Wales and the coal industry in Hunter Valley.
"Investment is triggered by producer nominations, but the framework is flexible enough to ensure plans can be adjusted according to industry conditions," said Pooley about the possibility to change the plan.
The Australian thermal coal industry is reeling as coal prices are dropping in the face of an oversupplied coal market. August-loading cargoes at FOB Newcastle have sold at $86.15/tonne this week.
The trade is the third lowest deal for a prompt cargo reported to ICIS going back to mid-2010, when ICIS began collection FOB Newcastle physical trades. And the only two lower were May cargoes sold in late in April, indicating they were likely to be distressed cargoes.
Market participants doubt Australian coal prices could drop much farther, as producers in the country have some of the world's highest production costs. Instead, many of them believe current prices will force producers to consider change, including closing mines. However, closures are more difficult in Australia than in other regions because of the strong union presence, a source previously said.
The new terminal was originally to begin operating in 2015 or 2016, but the date has slid to 2017. Fionn O'Raghallaigh
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