Queensland coal export values to tumble, some mines may close
The Federal Government has forecast a massive downturn in export revenue from the coal sector with the potential for high-cost mines to close as global demand for steel shrinks.
In its December quarter report, the chief economist of the Department of Industry, Science, Energy and Resources said metallurgical coal exports were forecast to fall by $26 billion from $48 billion in 2019-20 to $22 billion in 2020-21 and recover to $27 billion in 2021-22.
And it warned that the La Nina weather pattern could restrict exports further if central Queensland mines were affected by flooding.
āThe overriding risk to the outlook for prices is a scenario in which Chinaās informal import restrictions on Australian coal extends beyond the end of the quarter and into 2021,ā the report said.
āIn such a scenario, prices would stay low for longer, as Australian exporters take time to adjust. Australian exporters in this scenario will need to find customers in other countries to buy up to 3ā4 million tonnes a month of metallurgical coal, and as other exporting countries have to redirect 3ā4 million tonnes a month to China to meet the needs of its growing steel industry.
āChinaās steel industry would likely face a particular challenge in obtaining the higher-grade hard coking coals in sufficient quantities. Indications of coal trade realignment started in the December quarter, with additional Australian cargoes delivered to Indian ports and other Asian customers in response to uncertainty regarding Chinese policy.
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āTo fill the gaps caused by restricting Australian coal, other exporters such as Canadaās Teck Resources are diverting sales to China where possible.ā
The report said export volumes were expected to decline due to lower global demand for metallurgical coal, with some Australian miners announcing production cutbacks or temporary closures, and the potential for further announcements to follow given the disruption caused by Chinese import restrictions.
āHowever, there are a number of factors that reduce the risk of widespread mine closures in Australia. These include ātake-or-payā contracts with rail and port operators, contracted export sales, and the costs associated with moving to care and maintenance.
āAbout two-thirds of Australian metallurgical coal exports are hard coking coal, while the remaining third is composed of pulverized coal for injection (PCI) and semi-soft coking coal.
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āMost Australian HCC producers appear to be relatively well-positioned at current spot prices. Semi-soft coking coal and PCI miners seem to be at higher risk of operating losses.
āSome mines ā like Bluff PCI Mine in the Bowen Basin ā have gone into ācare and maintanenceā citing their intention to halt production āwhile the coal price remains below economic levels and uncertainty remains regarding Chinese Government policy relating to Australian metallurgical coal importsā. On 19 November 2020, that mineās contracted operator, MACA, called in receivers to commence debt recovery against the owner.
The report said a recovery in world economic activity and news of a potential COVID-19 vaccine had improved the outlook for Australiaās energy and resource commodity exports from its last report in September.
āTotal resource and energy exports are forecast to reach $279 billion in 2020ā21, supported by record high iron ore and gold prices, as well as price recovery in base metals. This strength is driven by tight iron ore markets and safe haven demand for gold in uncertain economic times,āā it said.
āGoing forward, recovering world supply and stabilising economic conditions are expected to see both iron ore and gold prices retreat, leading to a fall in export earnings. In 2021ā22, resources and energy exports are forecast to be $264 billion.
āLNG spot prices have been restored and oil prices have stabilised, however export earnings for both commodities are forecast to fall, before partial recoveries in 2021ā22. After a tumultuous 2020, ongoing low price pressure and reduced volumes are expected to weigh thermal coal exports over the outlook period.āā
The report said coal producers had already started cutting back production.
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