Friday 2nd Oct, 2020

Marginal coal producers benefit from limited Aussie exports

Coal. Photo: Shutterstock.
Photo: Shutterstock.

Constraints to coal exports on Australia’s east coast have led to major windfalls for foreign coal producers, as supply constraints push coking coal prices well above US$200 a tonne.

According to a Fairfax report this week, shipping queues at the Dalrymple Bay Coal Terminal near Mackay – one of Queensland’s largest coal export sites – grew to their highest level since 2010.

The terminal is still struggling with the fallout from Cyclone Debbie in April, which has left miners still trying to clear massive stockpiles that built up when large swathes of the coal export network were shut down by the cyclone eight months ago.

Add to this continuing maintenance programs, and a major increase in ship visits as coal buyers look to stock up ahead of next year’s cyclone season, and Queensland’s coal ports are facing significant congestion issues.

Congestion at DBCT, and terminals like it, has helped drive a 34% rise in the price of coking coal since November, and a 67% boost since June, to a price of US$236.10 a tonne at the end of last week.

But foreign producers are the biggest beneficiaries of this improved price environment, with the United States Energy Information Administration recently reporting the US exported 68% more coal in the first nine months of 2017 than it did in the same period of 2016.

Commonwealth Bank commodities analyst Vivek Dhar reportedly told AFR DBCT had 45 ships in its queue last week, compared to an average of 30 ships between 2011 and mid-2017.

At the same time, China has diversified its supply base, with 37% more coal shipped there from Mongolia in the year ending October 2017, than in the year prior.

“While margins have played a major role in increasing coking supply from Mongolia a shortage of low-sulphur, low-ash coking coals has equally seen the reliance on Mongolian coking coal increase,” Dhar was quoted as saying.

“Demand [for coking coal] has proven stronger than expected, particularly at steel mills and coke ovens in southern China, where environmental protection measures have not limited industrial activity. These mills and coke ovens have strong financial incentives to maximise production as margins remain elevated.”