NSW conference comes at key time for coal

By Paula Wallace

It’s not only price movements which create this uncertainty but the rate at which idled production capacity may be restarted as the industry watches for definitive signs of recovery in key economies around the world.
Professionals from across the coal and energy sectors in New South Wales came together to discuss some of these issues, at the NSW Coal & Energy conference, held in Sydney (September 28th & 29th).
With a wide range of speakers the conference provided outlooks for thermal, coking coal and coal seam gas; and discussed environmental and financing challenges, cost trends and infrastructure.
In 2008-09 metallurgical coal exports from Australia totalled 125 million tonnes at a value of A$36.7 billion; and thermal coal exports were 136 million tonnes at a value of A$17.9 billion.
The Australian Bureau of Agricultural and Resource Economics (ABARE) has forecast that the value of metallurgical coal exports could decline by as much as 50 per cent in the current financial year, to around $18 billion.
The record prices that underpinned high export earnings in 2008-09 declined by between 57 and 62 per cent for JFY 2009. This price decline is forecast to more than offset a 4 per cent increase in export volumes from 125 million tonnes (2008-09) to 130 million tonnes (2009-10).
In the current financial year, thermal coal should see a production increase of 4 per cent to 213 million tonnes in 2009-10, according to ABARE. Given the 44 per cent decrease in contract price for JFY 2009, export earnings in 2009-10 are forecast to decline by 38 per cent to A$11.1 billion.
The main coal export terminal in NSW, Port Waratah Coal Services in Newcastle, is aiming to handle 113 million tonnes of coal each year by the end of 2009.
The world's biggest coking coal producer, BHP Billiton, has confirmed that it is pushing hard to shift its sales away from traditional long-term contracts. Instead, it wants to sell on spot markets and on three-monthly contracts that, analysts say, will enable it to price-pick during times of high demand.
September has seen more than a 10 per cent rise in the spot price from thermal coal since March 2009, supported by strong import demand from China and India.
“How much of the pick-up in growth reflects temporary inventory re-stocking, versus stronger underlying demand is uncertain at this time, and probably will remain that way for another 6-9 months,” said Lachlan Shaw, commodities analyst with the Commonwealth Bank.
Shaw, who addressed conference delegates, told The Australian Journal of Mining (AJM), “In the medium term, we think the combination of the global financial crisis-induced cuts to new projects, combined with increasingly synchronised world GDP growth from mid-2010 into 2011-12 will result in a price spike in 2011 and 2012.
While over the long-term, the Commonwealth Bank sees increasing demand for high quality coking coal to service the global steel making sector, it sees low quality coking coal and PCI remaining at the whim of cycles.
“When demand is strong, prices will be high but the corollary is that on downcycles, prices and demand for these coals will fall more than premium coking coal,” said Shaw.
Adding to pressure on coal developers and producers, the Australian dollar has appreciated markedly since March 2009, both against the US dollar and on a trade weighted basis.
Don Barnett of Minec told the AJM, “The threat posed by the steadily strengthening A$ and the lower US$ contract prices is eroding margins, but the additional cost imposts of greenhouse related taxes could be a real problem and may stop new, and hence costly areas being developed.”
Judging by its historical movements, the Australian dollar has a tendency to appreciate strongly in the beginning phase of world economic recovery, said ABARE’s Australian Commodities report. Its forecasts assume an average price for the Australian Dollar of US83 cents and TWI 66 – this compares with an average of US75 cents and TWI 60 in 2008-09.
“Therefore, there is a distinct possibility the Australian dollar could remain at its current level or even appreciate further against the US dollar in the short term,” said the report.
According to the Minerals Council of Australia, the Federal Government’s proposed Carbon Pollution Reduction Scheme will reduce employment in the minerals sector by 23,500 by 2020, and cost the coal industry $5 billion in the first five years.
The Commonwealth Bank does expect growth in thermal coal demand in advanced economies to slow as policies are adopted to reduce the carbon footprint of power grids.
“But the sheer scale and importance of thermal coal as a source of power means that the fuel will continue to make a significant contribution to overall global fuel needs for decades to come,” said Shaw.

For more information visit:
http://www.informa.com.au/conferences/mining/metals-minerals/nsw-coal-and-energy-conference