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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, 24 May 13
OPG POWER VENTURES OF INDIA LOOKING FOR 210,000 MT OF 4,200 GAR INDONESIAN THERMAL COAL
COALspot.com - OPG Power Ventures Plc (OPG) is an AIM listed (London Stock Exchange) and fast growing developer and operator of power plants in Indi ...
Thursday, 23 May 13
HANDY : THE ATLANTIC MARKET REMAINS UNCHANGED - FEARNRESEARCH
Handy
The Atlantic market remains unchanged. USG-Feast rates were around USD 19k. Little change from last week in the Pacific, fewer stems and tonn ...
Thursday, 23 May 13
COLOMBIA SHIPPED 11.74 MILLION TONS OF THERMAL COAL IN Q1
COALspot.om - Colombia produced about 18,388,972.94 mt of coal for the first quarter of 2013.
Q1' 2013 coal production was around 21.42 p ...
Wednesday, 22 May 13
COKAL SIGNS JV WITH MDM, FOR BARITO RIVER BARGING
COALspot.com - Cokal Limited (ASX: CKA) has announced that it has entered into a 50:50 Joint Venture (JV) with Meratus Advance Maritime (MDM) one of ...
Tuesday, 21 May 13
NEWCASTLE PORT COAL SHIPMENTS SEEN FALLING WEEK ON WEEK
COALspot.com - Newcastle port in Australia has loaded 2,205,024 tons of thermal and coking coal for week ended 0700 hours 20 May 2013, Newcast ...
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- IEA Clean Coal Centre - UK
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- Renaissance Capital - South Africa
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- Ceylon Electricity Board - Sri Lanka
- Petron Corporation, Philippines
- Makarim & Taira - Indonesia
- Banpu Public Company Limited - Thailand
- Goldman Sachs - Singapore
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- ICICI Bank Limited - India
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- Georgia Ports Authority, United States
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- Sakthi Sugars Limited - India
- Economic Council, Georgia
- The Treasury - Australian Government
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- Ministry of Mines - Canada
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sindya Power Generating Company Private Ltd
- Straits Asia Resources Limited - Singapore
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Transport, Egypt
- Deloitte Consulting - India
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- IHS Mccloskey Coal Group - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aditya Birla Group - India
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- Miang Besar Coal Terminal - Indonesia
- Borneo Indobara - Indonesia
- Kepco SPC Power Corporation, Philippines
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- Samtan Co., Ltd - South Korea
- Edison Trading Spa - Italy
- Mintek Dendrill Indonesia
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- PTC India Limited - India
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- Coal and Oil Company - UAE
- Orica Australia Pty. Ltd.
- Heidelberg Cement - Germany
- Mjunction Services Limited - India
- Indogreen Group - Indonesia
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- Tata Chemicals Ltd - India
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- Baramulti Group, Indonesia
- Planning Commission, India
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- Maharashtra Electricity Regulatory Commission - India
- Indian Energy Exchange, India
- Altura Mining Limited, Indonesia
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- PowerSource Philippines DevCo
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- CNBM International Corporation - China
- Therma Luzon, Inc, Philippines
- Thai Mozambique Logistica
- Electricity Generating Authority of Thailand
- Gujarat Electricity Regulatory Commission - India
- Meenaskhi Energy Private Limited - India
- Mercuria Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
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- Electricity Authority, New Zealand
- Australian Coal Association
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- Merrill Lynch Commodities Europe
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- MS Steel International - UAE
- Bukit Makmur.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- VISA Power Limited - India
- GVK Power & Infra Limited - India
- Iligan Light & Power Inc, Philippines
- Standard Chartered Bank - UAE
- Rio Tinto Coal - Australia
- Intertek Mineral Services - Indonesia
- India Bulls Power Limited - India
- Cement Manufacturers Association - India
- SMC Global Power, Philippines
- CIMB Investment Bank - Malaysia
- European Bulk Services B.V. - Netherlands
- Bangladesh Power Developement Board
- Indika Energy - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Price Waterhouse Coopers - Russia
- Bukit Baiduri Energy - Indonesia
- Singapore Mercantile Exchange
- Directorate Of Revenue Intelligence - India
- Bhushan Steel Limited - India
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- GN Power Mariveles Coal Plant, Philippines
- Kumho Petrochemical, South Korea
- LBH Netherlands Bv - Netherlands
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- TeaM Sual Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
- Wood Mackenzie - Singapore
- Eastern Coal Council - USA
- Vedanta Resources Plc - India
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- The University of Queensland
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- International Coal Ventures Pvt Ltd - India
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- Jaiprakash Power Ventures ltd
- Kobexindo Tractors - Indoneisa
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