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Tuesday, 16 July 13
TAKE - OR - PAY CONTRACTS CONTINUE TO INCENTIVISE AUSTRALIAN COAL PRODUCERS DESPITE POTENTIAL NEGATIVE CASH MARGINS - WOOD MACKENZIE
 Australia's coal production has continued to grow, despite lower coal prices in 2013. Global investors and suppliers are therefore questioning whether more production will be shut down. Wood Mackenzie estimates that in 2013, only 4 million tonnes (mt) of coal production in Australia is at risk of closure even though 32mt of coal will be produced at negative margins, including sustaining capital. The decision to continue production instead of shutting it down can mainly be attributed to transport and port contracts in Australia, otherwise known as 'take-or-pay' contracts.
Take-or-pay contracts are fixed cost contracts that result in most producers paying for capacity regardless of tonnes shipped. Stronger growth in exports relative to new capacity build will reduce the average cost per tonne that miners pay for not fully utilising contracted capacity.
Mr. Viktor Tanevski, Coal Cost Analyst at Wood Mackenzie, says, "There have only been two mine closures so far in 2013 compared to seven in 2012. Despite the low coal price environment and current margin squeeze, take-or-pay contracts are incentivising coal producers to increase rather than reduce production, even if additional production is generating negative cash margins. This is because the fixed cost of infrastructure capacity makes the cost of shutting down even more expensive than the cost of maintaining production."
"We estimate that only 4mt, or just over 1% of Australia's coal exports in 2013, is at risk of closure based on Hard Coking Coal (HCC) price of US$171/t and thermal coal price of US$92/t. This is not a significant volume of output; however the amount at risk increases significantly under a lower price scenario.
Wood Mackenzie analyses that if average prices fall to US$122/t for HCC and US$77/t for thermal coal in 2013, then 45mt or 13% of Australia's coal exports in 2013 will be at risk of closure. At that price, a total of 204mt of production will be suffering negative margins.
In summary, Mr. Tanevski says, "Our expectation is that there will not be a significant dent in Australia's production this year. However, if prices do fall below expectations, the risk of closure for mines producing at negative margins will increase, reducing output."
Editor's notes:
Wood Mackenzie is the most comprehensive source of knowledge about the world's energy and metals industries. We analyse and advise on every stage along the value chain - from discovery to delivery, and beyond - to provide clients with the commercial insight that makes them stronger. For more information visit Wood Mackenzie.
Views expressed herein are personal views of the author and not that of COALspot.com and subject to COALspot.com's disclaimer clause. We welcome article submissions from experts in the areas of coal, mining, shipping, etc. To submit your articles please click here.
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Sunday, 24 November 13
SUPRAMAX FREIGHT RATES REMAINED FIRM FROM INDONESIA TO INDIA AND CHINA - SOLYM
COALspot.com: The freight market was fairly steady except for the Supramax in SE Asia region which continued to remain firm. The BDI was down by 1.5 ...
Friday, 22 November 13
DRY BULK MARKET STILL LACKLUSTRE, DESPITE PROJECTIONS OF A NEW RALLY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
We might still be about six weeks far from the end of the year, but the projected by many analysts upcoming rally of the dry bulk market, hasn't ye ...
Friday, 22 November 13
US COAL PRODUCTION DOWN 1.3% W-W
COALspot.com – United States the world’s second largest coal producer, produced approximately 19.5 million short tons (mmst) of coal in ...
Thursday, 21 November 13
TAIPOWER TO PROCURE 750K MT OF 5500 GAR BITUMINOUS COAL FOR MAY - AUGUST 2014
COALspot.com: Taiwan Power Company intends to procure 750,000 metric tons of bituminous coal with calorific value not lesser than 5,500 kcal/kg on a ...
Thursday, 21 November 13
CAPESIZE : THE DOWNWARD TREND HAS TURNED INTO NOTABLE SPOT AND PERIOD IMPROVEMENT - FEARNLEYS
Handy
The Atlantic market experienced a general rate increase for most trades this week. More cargoes in the market and chrts looking for prompt t ...
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