27-06-2018

WoodMac cuts Australia’s met coal 2018 export forecast on Aurizon dispute

The outlook for Australian metallurgical coal export volumes for the year has weakened and price forecasts for the product have risen as quick resolution to the dispute between the Queensland Competition Authority and the state’s coal industry with rail operator Aurizon seems unlikely, mining consultancy Wood Mackenzie said in a report this week.

It cut its Australian coking coal export forecast to 180 million mt for 2018 from 182 million mt last month and around 188 million mt at the end of last year.

Australia’s metallurgical coal exports in April were hampered by a combination of port and rail maintenance issues. Excluding last year’s cyclone-ravaged figures, this means the country’s exports for June are the lowest since April 2013 and leaves the annualized rate for the first four months of the year at 172 million mt, Woodmac said.

“It is a poor start, but not untypical given Queensland’s wet season. 2018 performance so far sits close to 2015 figures, when Australia ended up exporting around 182 million mt,” it said.

Under normal circumstances, confidence in meeting the 2015 level would be high, but the impact of rail maintenance had raised the risk of exports falling short, it said.

The impasse currently enveloping Queensland’s coal logistics remains unresolved and while QCA is working toward a final decision on the matter, it was a slow process which is unlikely to be completed before September this year, Wood Mackenzie said.

“From the outside, the relationship between the QCA and Aurizon looks tense at best,” it said, adding that its request for submissions, made on May 30, did at least see “some mild support for Aurizon’s previous requests regarding director maintenance costs, which suggest that concessions may be made in the final decision.”

There was a heightened risk that Australia’s traditional export surge at the end of the fiscal year in June will collide with Aurizon’s dispute with the QCA, the report said.

Suppliers could see port delays grow and seaborne prices rise.

“This process has already began with the $5/mt jump in HCC prices on the last day of May. Further rises are likely, possibly moving above $200/mt towards Chinese equivalent prices, as buyers look to secure July deliveries during a period of constrained supply,” it said.

Higher production in China in early 2018, which was partly the result of private mines operating above capacity, could come under pressure as there were some minor accidents in late May, which will likely lead to increased safety checks, the report said.

“China’s coal mine safety administration has announced inspections to ensure approved mine capacities are not exceeded, with fines and production stoppages likely. This action will keep prices supported, and may limit production growth through the rest of the year,” it said.

Wood Mackenzie forecast that premium seaborne low calorific hard coking coal prices would fall to $168/mt by the end of the year, up from its previous forecast of around $160/mt.

Platts assessed Premium Low Vol FOB Australia at $198/mt FOB Australia Monday.

PCI and semi soft coking coal prices will continue to benefit from the strength in the hard coking coal sector, it said. “The wide price differentials between SSCC and premium HCCs should encourage their greater use, and higher margins on thermal sales should see some semi-soft diverted to that market. However, the preference for premium coking coals seems to be limiting upside for semi-softs, and as such, we have not increased their 2018 prices to the same extent as PCI,” it said.

Woodmac has revised its Australia LV HCC forecast upward to an average of $171/mt for next year.

Source: Platts

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