(EnergyAsia, June 6 2012, Wednesday) — Australia’s thermal coal has become uncompetitive and too costly against other producers, according to the Commonwealth Bank of Australia (CBA).
In a research report, the bank found that Australia’s production cost has risen by an average nominal rate of 25% a year since 2007 on a combination of the rising value of the local currency, tougher environmental regulations and higher labour costs.
Analysts Lachlan Shaw and Vivek Dhar calculated that Australia, the world’s second largest thermal coal exporter, incurred a median mining cost of US$141 a ton to far exceed South Africa’s US$99 a ton and Indonesia’s US$56 a ton.
In concluding that “new Australian projects are less attractive than projects in almost any other jurisdiction”, their research finding vindicates recent decisions by companies to shut down mines or reduce operations. Last year, Switzerland’s Xstrata shut down three of its Australian mines while US Peabody Energy is reported to be looking to sell off some of its coal mines.
Despite this dismal pronouncement, the Australian government has forecast that the country will earn A$49 billion from exporting a total of 310 million tons of thermal and metallurgical coal in the current fiscal year to June 30.
These projections may have to be pared back if coal demand in key Asian markets such as China and India slacken this quarter on account of their slowing economies, the Eurozone crisis and increased US natural gas consumption in place of coal.
Chinese buyers are reported to be deferring and defaulting on contracts to import coal and iron ore this quarter. Prices have dropped significantly as at least six spot cargoes of thermal coal have found their way back into the Asian market. Traders warn the fall-out could continue through the rest of 2012 and even into early next year if the outlook on the world economy remains troubled.
In the medium term, China is developing its own thermal coal reserves and increasing its import of natural gas, further undermining its demand for coal imports.
The CBA report observed that Xinjiang province is beginning to exploit its thermal coal reserves while Shanxi province is on course to boost production to as much as 200 million tons a year by 2016.
As a result, the bank has lowered its 2013 price forecast for Australia’s thermal coal by 19% to US$98 a ton and its 2014 forecast 3% to US$100 a ton.