TOKYO: Australia’s coal producers are looking to other markets after falling Chinese demand. Australia will grab Indonesia to reclaim its title as the world’s biggest coal exporter by 2017, according to government forecasts. In the meantime though, the industry is expected to see tough times as it adjusts to China’s slowdown and a supply overhang from the boom, along with environmental pressures, with India emerging as the new source of demand.
Highlighting sluggish prices, Japan’s Tohoku Electric Power reportedly agreed to an annual thermal coal import deal with Rio Tinto at prices 17 percent below a year ago, according to Japan’s Nikkei newspaper. The annual price was settled in the “upper $67 range” per ton for coal from Australia for the Japanese fiscal year beginning April 1, below last year’s price of $81.80 and nearly half the peak price of $130 reached in fiscal 2011.
Spot prices for Newcastle coal have fallen to around $56 a ton recently, with Japanese buyers indicating they were “disappointed” by the price agreed with the Anglo-Australian mining giant. According to Reuters, Tohoku accepted the “high” price to secure a stable supply of high-quality coal from Australia, which is Japan’s largest thermal coal supplier.
Analysts had predicted an annual Japanese contract price of around $70 a ton, with ANZ Bank and Australia’s government forecaster both eyeing $70 and National Australia Bank expecting $72.50.
In a February 18 report, ANZ Research slashed its price forecasts by 7-17 percent over the next three to four years, noting a “lack of supply discipline, mainly due to onerous take-or-pay infrastructure commitments in Australia,” with China also introducing “unfavorable trade restrictions” to protect domestic producers.
According to consultancy HDR Salva, high thermal coal prices in 2010-11 incentivized a 43 percent surge in global production, or more than 250 million tons, with output only starting to fall in 2014.
In its latest quarterly report, the Australian government’s Department of Industry and Science said the delayed closure of unprofitable capacity would extend the current supply overhang into 2017, with prices starting to rise afterwards as the market rebalances.
