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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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Monday, 24 June 13
INDONESIA COAL SWAP FOR AUGUST 2013 DELIVERY GAINS WEEK ON WEEK
COALspot.com – Coal prices for immediate supply contracts have started moving up, but prices for next year supply shows a negative trend ...
Sunday, 23 June 13
BDI CROSSED ITS PSYCHOLOGICAL BARRIER THIS WEEK - VISTAAR
COALspot.com : The BDI crossed the psychological barrier of 1000 points after many months and closed at 1,027 points, which were up by 14.11 pct wee ...
Sunday, 23 June 13
SHIP PRICES NOT FOLLOWING FREIGHT MARKET FUNDAMENTALS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Although it's been the case in many occasions in the past, it appears that ship prices haven't been quite following freight market fundamentals, i ...
Friday, 21 June 13
U.S. COAL PRODUCTION INCREASED WEEK ON WEEK, EIA SAYS
COALspot.com – United states the world’s second largest coal producer produced totalled approximately 19.70 million short tons (mmst) of ...
Thursday, 20 June 13
CAPESIZE : FINALLY A SUBSTANTIAL IMPROVEMENT IN RATES! - FEARNLEYS A.S
Handy
Atlantic market kept a steady curve from last week. US Gulf positions fetched tick above USD 21k for Cont/Skaw direction, and vessels fixed f ...
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- Gujarat Electricity Regulatory Commission - India
- Minerals Council of Australia
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- Metalloyd Limited - United Kingdom
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- GN Power Mariveles Coal Plant, Philippines
- Edison Trading Spa - Italy
- IHS Mccloskey Coal Group - USA
- Orica Mining Services - Indonesia
- Medco Energi Mining Internasional
- Binh Thuan Hamico - Vietnam
- Coastal Gujarat Power Limited - India
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- Sical Logistics Limited - India
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- Global Coal Blending Company Limited - Australia
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- Indian Energy Exchange, India
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- White Energy Company Limited
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- Thai Mozambique Logistica
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- Commonwealth Bank - Australia
- VISA Power Limited - India
- Sojitz Corporation - Japan
- MS Steel International - UAE
- Singapore Mercantile Exchange
- Agrawal Coal Company - India
- Africa Commodities Group - South Africa
- Price Waterhouse Coopers - Russia
- Gujarat Sidhee Cement - India
- McConnell Dowell - Australia
- Mintek Dendrill Indonesia
- Renaissance Capital - South Africa
- Parliament of New Zealand
- Holcim Trading Pte Ltd - Singapore
- IEA Clean Coal Centre - UK
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- Rashtriya Ispat Nigam Limited - India
- Ceylon Electricity Board - Sri Lanka
- Ministry of Finance - Indonesia
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- PTC India Limited - India
- Electricity Generating Authority of Thailand
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- Directorate General of MIneral and Coal - Indonesia
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- Alfred C Toepfer International GmbH - Germany
- Iligan Light & Power Inc, Philippines
- Mercator Lines Limited - India
- Meenaskhi Energy Private Limited - India
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- Trasteel International SA, Italy
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- Samtan Co., Ltd - South Korea
- Eastern Energy - Thailand
- Borneo Indobara - Indonesia
- Energy Link Ltd, New Zealand
- Eastern Coal Council - USA
- Planning Commission, India
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- Indian Oil Corporation Limited
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- The State Trading Corporation of India Ltd
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- GAC Shipping (India) Pvt Ltd
- London Commodity Brokers - England
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- The Treasury - Australian Government
- TNB Fuel Sdn Bhd - Malaysia
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