A report by Macquarie Private Wealth shows the collapse in the thermal coal price and the high Australian dollar may see important coal chain infrastructure projects shelved and major new coal mining projects delayed, says Macquarie Private Wealth.
The huge investment needed to get coal to port from the new Queensland coal mining areas around the Galilee and Surat basins could dry up if the Australian dollar continued to rise above parity with the US dollar, the report found.
“Compounding the situation is the ongoing strength in the Australian dollar,” it said.
“Normally a commodity currency, reasonable weakness would have been expected with iron ore and coal trading 20-30% below levels seen last year.
“However, the relative sovereign stability has seen some safe haven buying and while it has moved back towards parity with the US dollar, it remains approximately 10 per cent above what would have been expected.
“If Australian dollar forecasts are revised upwards 10 per cent in the medium-long term, this could dramatically reduce the viability of many Australian thermal coal projects.”
Australian Coal Association chief executive Dr Nikki Williams told a meeting in Brisbane yesterday that government should not be complacent about the effect of the low coal prices on infrastructure projects.
“Exactly one month ago today, I spoke at CoalTrans in Indonesia, when the thermal Newcastle thermal FOB price was $98,” she said.
“Two weeks later it had fallen to $89 and last week it was $83. Whilst metallurgical coal prices have been more resilient, the warning bells we have been sounding on costs for some time are now ringing loud and clear, as margins dramatically decrease and Australia’s competitiveness for mobile international capital comes under assault.
"These are warning signs which Australian governments need to take very seriously.”
In the Australian coal industry, both on the infrastructure and mining side, huge capital projects slated for the next ten years could come under review, according to Macquarie.
“Given that the coal mining sector in Australia has been at the forefront of spiralling capital intensity and infrastructure challenges in recent history, we think it likely that there could be a pause in development of many projects in the coming months,” it said.
“Infrastructure is likely first on the agenda, with the need for buy-in from many participants required for most projects.”
Macquarie believed it was presently evident, with expansion terminals at Abbot Point and Newcastle already shelved and concerns over further delays to the Wiggins Island terminal, should key participants pull out.
The current thermal coal price range of less than $100 per tonne is below that required to incentivise Galilee Basin projects given the huge infrastructure capital required, while construction of the Southern Missing Link to the Surat Basin may also come under review, according to Macquarie.
Weaker market fundamentals have hit many market participants in 2012, with capacity being curtailed in Indonesia, China, the US and Australia.