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Australian coalminers feel the squeeze as Chinese demand slows down

Steel News - Published on Tue, 10 Jul 2012

Australian domestic coal producers are feeling the pinch and many new projects may be put on hold. That\'s the bottom line message from ANZ\'s commodity man, Mark Pervan, after a tour of Queensland and NSW coalfields.

Pervan found Chinese demand has slowed and not likely to improve until the December quarter. India is taking only coal covered by contracts and is largely absent from the spot market, while Japan is well covered for the remainder of the year.

Queensland ports are operating at between 40 and 60% coal capacity, well below normal levels. Slower demand for coking coal has cut shipping activity, but the prolonged mine strike is also taking its toll.

A few weeks ago, Pervan reported that 10% of Indonesian coal producers are selling at below cost. But the squeeze is also evident here in Australia: on this latest trip, he found operators in the eastern states reporting capital costs have risen almost fivefold over the past five years.

Many in the industry believe junior developers will be delaying investment decisions. And large projects, such as Xstrata\'s Wandoan mine in the Surat Basin, look marginal in present conditions.

Many producers will be lucky to break even at current prices, Pervan says. Meanwhile, fixed labour costs are biting hard: dump truck divers are earning up to USD 150,000 a year and pilots guiding bulk carriers to their berths are taking home USD 350,000 a year (which is still less than their counterparts in Western Australia who get up to USD 500,000). Port access charges have jumped significantly over the past three years.

Foster Stockbroking is taking a heartier view of the coal sector, noting China\'s imports will this year reach a record 285 million tonnes, with Indonesia and Australia the key sources.

The shale gas revolution in the US has seen stocks in American thermal coal producers plummet. This, along with high mining costs in the Appalachia, could see as much as 25% of that country\'s thermal coal capacity idled. This will be positive for other exporters. Newcastle thermal coal has crept back above AUD 88 a tonne after hitting its lowest level in two years. Coking coal has managed to stay between AUD 200 and AUD 235 a tonne.

Source - The Australian

Posted By : admin on Tue, 10 Jul 2012
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