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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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- GN Power Mariveles Coal Plant, Philippines
- Trasteel International SA, Italy
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- Globalindo Alam Lestari - Indonesia
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- Chettinad Cement Corporation Ltd - India
- Antam Resourcindo - Indonesia
- Ministry of Finance - Indonesia
- Jindal Steel & Power Ltd - India
- Indonesian Coal Mining Association
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- Holcim Trading Pte Ltd - Singapore
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- GVK Power & Infra Limited - India
- MS Steel International - UAE
- Coalindo Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Jaiprakash Power Ventures ltd
- Port Waratah Coal Services - Australia
- Electricity Authority, New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
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- SMC Global Power, Philippines
- India Bulls Power Limited - India
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- Georgia Ports Authority, United States
- Coal and Oil Company - UAE
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- Price Waterhouse Coopers - Russia
- PNOC Exploration Corporation - Philippines
- Electricity Generating Authority of Thailand
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- Lanco Infratech Ltd - India
- Ministry of Transport, Egypt
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- CIMB Investment Bank - Malaysia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
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- VISA Power Limited - India
- Independent Power Producers Association of India
- Mercator Lines Limited - India
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- Attock Cement Pakistan Limited
- Banpu Public Company Limited - Thailand
- Indo Tambangraya Megah - Indonesia
- Petron Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- LBH Netherlands Bv - Netherlands
- IHS Mccloskey Coal Group - USA
- Savvy Resources Ltd - HongKong
- Semirara Mining and Power Corporation, Philippines
- Tata Chemicals Ltd - India
- European Bulk Services B.V. - Netherlands
- Wood Mackenzie - Singapore
- Chamber of Mines of South Africa
- Meralco Power Generation, Philippines
- Commonwealth Bank - Australia
- Carbofer General Trading SA - India
- Aditya Birla Group - India
- Straits Asia Resources Limited - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Australian Commodity Traders Exchange
- ICICI Bank Limited - India
- Heidelberg Cement - Germany
- Miang Besar Coal Terminal - Indonesia
- Essar Steel Hazira Ltd - India
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- SMG Consultants - Indonesia
- Sical Logistics Limited - India
- Indogreen Group - Indonesia
- Karaikal Port Pvt Ltd - India
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- Neyveli Lignite Corporation Ltd, - India
- Medco Energi Mining Internasional
- Edison Trading Spa - Italy
- Kepco SPC Power Corporation, Philippines
- Mintek Dendrill Indonesia
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- Xindia Steels Limited - India
- International Coal Ventures Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- GMR Energy Limited - India
- Australian Coal Association
- Orica Australia Pty. Ltd.
- CNBM International Corporation - China
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- Baramulti Group, Indonesia
- Binh Thuan Hamico - Vietnam
- Indian Oil Corporation Limited
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Mines - Canada
- Romanian Commodities Exchange
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- Energy Link Ltd, New Zealand
- Gujarat Electricity Regulatory Commission - India
- Grasim Industreis Ltd - India
- White Energy Company Limited
- Bhushan Steel Limited - India
- Minerals Council of Australia
- PTC India Limited - India
- Gujarat Sidhee Cement - India
- Indian Energy Exchange, India
- London Commodity Brokers - England
- Renaissance Capital - South Africa
- ASAPP Information Group - India
- Larsen & Toubro Limited - India
- Eastern Energy - Thailand
- Bharathi Cement Corporation - India
- New Zealand Coal & Carbon
- Semirara Mining Corp, Philippines
- Economic Council, Georgia
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- Bhoruka Overseas - Indonesia
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- Asmin Koalindo Tuhup - Indonesia
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- Formosa Plastics Group - Taiwan
- Leighton Contractors Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- Agrawal Coal Company - India
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- Sree Jayajothi Cements Limited - India
- Billiton Holdings Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Central Electricity Authority - India
- Mjunction Services Limited - India
- Simpson Spence & Young - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- The University of Queensland
- Power Finance Corporation Ltd., India
- Deloitte Consulting - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Salva Resources Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Global Green Power PLC Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Goldman Sachs - Singapore
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- Cement Manufacturers Association - India
- IEA Clean Coal Centre - UK
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- Merrill Lynch Commodities Europe
- Interocean Group of Companies - India
- Sojitz Corporation - Japan
- Ceylon Electricity Board - Sri Lanka
- Eastern Coal Council - USA
- SN Aboitiz Power Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Kobexindo Tractors - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
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- Kumho Petrochemical, South Korea
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- Directorate General of MIneral and Coal - Indonesia
- Bangladesh Power Developement Board
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- Parliament of New Zealand
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