Coal news and updates

Australia forecast solid growth over the next five years for two of its biggest export earners, iron ore and thermal coal, but analysts warned it may struggle to meet targets for coal as global demand growth fades.

 

Iron ore exports are forecast to jump 17 percent in 2013/14 and average 8 percent growth over the next five years, despite softening demand growth in China, the Bureau of Resources and Energy Economics (BREE) said in its latest quarterly report.

 

Australia controls two-thirds of the world seaborne market for iron ore and giant, low-cost producers such as Rio Tinto , BHP Billiton have been spending billions to boost capacity.

 

The bureau also forecast average 8 percent growth for thermal coal exports, used to feed power stations throughout Asia, although its forecast depended on a pick-up in growth towards the end of the period.

 

But the country's thermal coal industry, whose exports feed power stations throughout Asia, does not enjoy the same price advantage over competitors and could struggle with prices already at a four-year low, said analysts.

 

"Australia is currently the marginal cost producer in the thermal coal trade globally... there's not an incentive with coal prices right now for Australian producers to be expanding production rapidly," said Sydney-based UBS analyst Daniel Morgan.

 

Adjusting for energy content, Australia's average production costs in 2012 were about $85 a tonne, compared with $60 in South Africa and about $55 in Indonesia, the world's largest thermal coal exporter which tends to sell mostly lower quality coal, according to UBS data.

 

Coal is Australia's second-largest export earner behind iron ore, worth nearly A$40 billion ($38 billion), with A$16 billion from exports of thermal coal. Iron ore exports are worth about $57 billion.

 

The bureau forecast total mineral and energy export earnings would rise 11 percent in 2013/14 to around A$200 billion, supported by strong export growth and a lower Australian dollar exchange rate.

 

According to International Energy Agency (IEA) data, world thermal coal trade is estimated to have jumped 14 percent in 2012 to 989 million tonnes, driven by demand in China and India. Growth is projected to slow to an average 2.1 percent a year between 2013 and 2018.

 

China has recently vowed to curb the use of coal as it tries to tackle air pollution, although the IEA eastimates coal will generate nearly half of Southeast Asia's electricity by 2035, up from less than a third today.

 

The bureau said Australia's additional thermal coal will come from mines under expansion in coal fields on the eastern seaboard, where rail haul lines and ports already exist.

 

These include Rio Tinto and Mitsubishi's Hunter Valley expansion project, BHP's Mount Arthur project and Whitehaven Coal's Narrabri expansion.

 

It warned that other coal mining projects at the planning stage faced rising construction and operating costs which had reduced their financial viability.

 

Australian investors have teamed up with Chinese and Indian groups in hopes of developing huge mines in the Galilee basin in Queensland state, a barren patch of outback 500 miles from the nearest port

 

CIMB, which sees Australia's thermal coal exports growing at around half the pace forecast by the bureau, said Australia's production increases through 2018 would come from expansions of existing projects."There's a big question mark over all of the projects," said Daniel Hynes, Head of Commodities Research for CIMB in Sydney. "It would be hard to get any new project off the ground at the moment."

 

 

 

Source: Reuters