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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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Friday, 20 September 13
DRY BULK MARKET REACHES NEW HEIGHTS THIS WEEK STANDING AT THREE-YEAR HIGH - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The biggest rally of the dry bulk market in more than three years have brought back joy among ship owners, especially those active in the Capesize m ...
Friday, 20 September 13
US COAL PRODUCTION SLIGHTLY UP WEEK ON WEEK
COALspot.com – United States the world’s second largest coal producer produced totalled approximately 20.30 million short tons (mmst) of ...
Friday, 20 September 13
COLOMBIA SHIPPED 31.14 MILLION TONS OF THERMAL COAL IN H1
COALspot.com : Colombia’s coal exports fell by 20.59 percent in June 2013 compared to Colombia’s May's export of 7,633,579 MT.
Colom ...
Thursday, 19 September 13
CAPESIZE : AVERAGE DAILY EARNINGS HAVE GAINED ALMOST USD 6K WOW - FEARNLEYS
Handy
The rates in Feast are still firm this week even the activity calmed down a bit as chrtrs are not in a rush to cover even their end Sept carg ...
Wednesday, 18 September 13
IRON ORE AND ZINC ARE BEST PERFORMING MINING SECTORS IN CURRENT LOW PRICE, HIGH COST ENVIRONMENT - WOOD MACKENZIE
With the fall in commodity prices, cash margins in the mining industry have come under pressure. Accordingly, producers and investors are placing in ...
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- Alfred C Toepfer International GmbH - Germany
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- Wood Mackenzie - Singapore
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- The State Trading Corporation of India Ltd
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- CNBM International Corporation - China
- Orica Mining Services - Indonesia
- Eastern Energy - Thailand
- Renaissance Capital - South Africa
- IHS Mccloskey Coal Group - USA
- Neyveli Lignite Corporation Ltd, - India
- Toyota Tsusho Corporation, Japan
- Sinarmas Energy and Mining - Indonesia
- Sree Jayajothi Cements Limited - India
- Romanian Commodities Exchange
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- ICICI Bank Limited - India
- GMR Energy Limited - India
- Global Coal Blending Company Limited - Australia
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- London Commodity Brokers - England
- ASAPP Information Group - India
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- Planning Commission, India
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- White Energy Company Limited
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- Independent Power Producers Association of India
- Leighton Contractors Pty Ltd - Australia
- Dalmia Cement Bharat India
- Sakthi Sugars Limited - India
- Antam Resourcindo - Indonesia
- Minerals Council of Australia
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- Binh Thuan Hamico - Vietnam
- Gujarat Mineral Development Corp Ltd - India
- Australian Coal Association
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- Pendopo Energi Batubara - Indonesia
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- IEA Clean Coal Centre - UK
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- Power Finance Corporation Ltd., India
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- The Treasury - Australian Government
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- LBH Netherlands Bv - Netherlands
- Star Paper Mills Limited - India
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- Samtan Co., Ltd - South Korea
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- European Bulk Services B.V. - Netherlands
- Trasteel International SA, Italy
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- GAC Shipping (India) Pvt Ltd
- Interocean Group of Companies - India
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- Chamber of Mines of South Africa
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- Vizag Seaport Private Limited - India
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- Goldman Sachs - Singapore
- Sical Logistics Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Eastern Coal Council - USA
- Manunggal Multi Energi - Indonesia
- Videocon Industries ltd - India
- Larsen & Toubro Limited - India
- Commonwealth Bank - Australia
- Maharashtra Electricity Regulatory Commission - India
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- Ind-Barath Power Infra Limited - India
- MS Steel International - UAE
- VISA Power Limited - India
- Agrawal Coal Company - India
- Africa Commodities Group - South Africa
- Directorate General of MIneral and Coal - Indonesia
- Banpu Public Company Limited - Thailand
- South Luzon Thermal Energy Corporation
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- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Thai Mozambique Logistica
- Sojitz Corporation - Japan
- PNOC Exploration Corporation - Philippines
- Makarim & Taira - Indonesia
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- Energy Link Ltd, New Zealand
- Ceylon Electricity Board - Sri Lanka
- Kumho Petrochemical, South Korea
- Meralco Power Generation, Philippines
- OPG Power Generation Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
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