Australian miners look for new markets as prices fall

Australian coal miners may need to look for new export markets or risk having to cut production or idle mines if prices continue to slide.

ICIS data show that Australian financial spot coal prices fell almost a quarter since the start of the year, with FOB Newcastle front month swap contract closing at a record low of $65.625 on Tuesday – 24% below the close on 2 January 2014 at $86.45/tonne. Similarly, prices of 6,000kCal/kg spot physical cargoes last week reached the lowest level in more than four years with a November-loading FOB Newcastle cargo changing hands at $66.00/tonne.

And the decline may not be over yet, sources said.

“I would agree that Newcastle prices are likely to stay under pressure due to weak Chinese demand, adequate Chinese domestic supply in spite of announced cuts, comfortable inventory levels significant concerns around Chinese import restrictions,” a coal analyst said.

Miners in Australia are either operating at the marginal cost of production or they’re making a loss which cannot be sustained in the long term, the analyst added.

Global miners such as Glencore, Vale and Rio Tinto have already cuts some of their production in Australia to reduce cost.

Finding new markets

Australian main export markets are China, Japan, South Korea and Taiwan, but over the course of 2014 export sales to Asia have fallen because of low demand and Australian miners are now desperately looking for new markets – such as Europe and India – to sell into.

Latest data by Port Waratah Coal Services (PWCS), which operates two out of three coal export terminals at Port of Newcastle, show exports totalled 9.2m tonnes in August 2014, 9% down month on month. However, exports did remain largely flat year-on-year, mainly on account of increased exports into Japan – traditionally the main buyer of Australian coal – in August 2014 ( see CSD 4 September 2014 ).

Chinese coal producers are producing more coal than they can consume, which has also contributed to market oversupply and a lack of appetite for imported coal.

There is also talk in the coal market of the Chinese government potentially banning high sulphur and high ash content coal that is sourced predominantly from Australia due to pollution concerns, which has put further downwards pressure on Australian physical and financial coal prices.

Earlier this week market sources confirmed physical cargoes of Australian 6,000kCal/Kg coal were currently on route to Europe { see CSD 9 September 2014 ]. But despite the price declines, Australian coal still doesn’t actually price into Europe.

“Economically it doesn’t make any sense. It shows the desperation of the Australian producers and its an attempt to get rid of coal,” a physical coal trader said.

Australian miners may find some relief in India, where utilities have critically low coal stocks, but Indian traders – notorious for chasing the lowest prices in the market – are also buying a lot of coal from South Africa and Indonesia, depending on prices and freight rates. Stacy Irish