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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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Thursday, 17 October 13
CHINA'S COAL IMPORTS DOWN 9.4% TO 25.96 MMT IN AUGUST
COALspot.com: China's August Imported coal volumes down 9.4% m-m but up 27% y-y, BNP said in its latest China Coal & Power report released on 1 ...
Wednesday, 16 October 13
NEW STRATEGIES AND OPPORTUNITIES IN A RAPIDLY EVOLVING COAL INDUSTRY
The 12th Annual Coal Markets assumes even more significance as the industry seeks more market information, inputs on trade strategies, supply and de ...
Wednesday, 16 October 13
CAPES: RATES DROPPED; PANAMAX: ADVANCED - INTERMODAL
After a month and a half of straight weekly positive closings, the BDI has finished the week in the red. Monday started slow as holidays in the East ...
Wednesday, 16 October 13
WILL THIS LATEST DRY BULK MARKET UPTREND PROVE TO BE AS LONG-LIVED OR JUST ANOTHER MOMENTARY SPIKE? - CHRISTOS MANZTIOS
COALspot.com: So here we are again facing the same old question: Will this latest market uptrend prove to be as long-lived as all owners hope or jus ...
Wednesday, 16 October 13
KOSEP TO IMPORT 0.49 MILLION TONS OF 4600 NAR COAL FOR JAN - FEB '14
COALspot.com - Korea South-East Power Co., a Korean generator and distributor of electricity on behalf of five Korean Gencos intends to procure 490, ...
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- Planning Commission, India
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- Maheswari Brothers Coal Limited - India
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- Intertek Mineral Services - Indonesia
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- Bukit Baiduri Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
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- Dong Bac Coal Mineral Investment Coporation - Vietnam
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- Minerals Council of Australia
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- Bulk Trading Sa - Switzerland
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- Sarangani Energy Corporation, Philippines
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- Australian Commodity Traders Exchange
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- Uttam Galva Steels Limited - India
- Jaiprakash Power Ventures ltd
- McConnell Dowell - Australia
- Eastern Energy - Thailand
- Trasteel International SA, Italy
- Global Green Power PLC Corporation, Philippines
- Bharathi Cement Corporation - India
- Miang Besar Coal Terminal - Indonesia
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- Billiton Holdings Pty Ltd - Australia
- Orica Mining Services - Indonesia
- Siam City Cement - Thailand
- Iligan Light & Power Inc, Philippines
- Larsen & Toubro Limited - India
- Price Waterhouse Coopers - Russia
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- Karbindo Abesyapradhi - Indoneisa
- Electricity Authority, New Zealand
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- Sakthi Sugars Limited - India
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- Interocean Group of Companies - India
- Pipit Mutiara Jaya. PT, Indonesia
- San Jose City I Power Corp, Philippines
- Star Paper Mills Limited - India
- Semirara Mining and Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- Lanco Infratech Ltd - India
- Parliament of New Zealand
- Kohat Cement Company Ltd. - Pakistan
- Semirara Mining Corp, Philippines
- Ministry of Mines - Canada
- MS Steel International - UAE
- Central Java Power - Indonesia
- Coastal Gujarat Power Limited - India
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- SN Aboitiz Power Inc, Philippines
- Malabar Cements Ltd - India
- GAC Shipping (India) Pvt Ltd
- Energy Development Corp, Philippines
- Aditya Birla Group - India
- CNBM International Corporation - China
- Parry Sugars Refinery, India
- Meralco Power Generation, Philippines
- Standard Chartered Bank - UAE
- GMR Energy Limited - India
- Grasim Industreis Ltd - India
- Heidelberg Cement - Germany
- Australian Coal Association
- Samtan Co., Ltd - South Korea
- Latin American Coal - Colombia
- Bhoruka Overseas - Indonesia
- Sical Logistics Limited - India
- European Bulk Services B.V. - Netherlands
- Energy Link Ltd, New Zealand
- Savvy Resources Ltd - HongKong
- London Commodity Brokers - England
- Pendopo Energi Batubara - Indonesia
- Rio Tinto Coal - Australia
- Meenaskhi Energy Private Limited - India
- Vizag Seaport Private Limited - India
- Ministry of Transport, Egypt
- Siam City Cement PLC, Thailand
- Mercuria Energy - Indonesia
- India Bulls Power Limited - India
- Alfred C Toepfer International GmbH - Germany
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- Bangladesh Power Developement Board
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- Marubeni Corporation - India
- Xindia Steels Limited - India
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- Africa Commodities Group - South Africa
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- Singapore Mercantile Exchange
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- Economic Council, Georgia
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