Green shoots on the coal patch

IT IS not easy being an optimist about the future for coal when jobs continue to disappear and pits close but when Hogsback surveyed the latest round of grim news he spotted what could be the first green shoots of growth for an industry in need of cheer.

Staff Reporter

Masked by the latest round of retrenchments, such as those at Rio Tinto Australia’s operations and those resulting from the collapse of Scotland’s biggest coal business, were three positive developments that could be signalling that the slump is coming to an end.

That does not mean recovery is imminent, or that it will be rapid.

It does, however, mean the pace of the downward slide is slowing and a period of bouncing along the bottom should set the groundwork for revival later this year, or early next year.

The positive developments spotted include:

  • Peabody Energy reporting a rebound in demand for coal in the US and continued strong demand in China and India
  • A surprisingly sharp increase in demand in Britain, a point which offsets the collapse of Scottish Coal; and
  • The awarding of fresh contracts on the upgrade of the Hay Point coal terminal in Queensland.

On their own – and if reported two years ago – none of those events would have generated a headline.

After all, they are small beer compared with the mega-bucks announcements the industry had grown used to and the grand mine development plans of investors in the coal sector.

However, after months of depressing news about mine closures and job losses it is a case of looking for clues that the downward slide is slowing and that could be the case.

Peabody, which has been hit as hard as anybody in the global coal business, confirmed earlier this week that it traded unprofitably in the March quarter.

It posted a loss of $US23.4 million ($A22.7 million) compared with a profit of $172.7 million in the corresponding quarter of 2012.

Behind the loss though was news that cost-containment measures were working and that coal demand was strengthening.

Chief executive officer Greg Boyce singled out domestic US demand for the St Louis-based miner and rising imports by China and India.

“We see another year of import growth from China and India, growing Chinese steel production and new coal generation being built around the globe,” Boyce said.

The Peabody boss could be putting on a brave face but it is worth considering some of the numbers he included in what was an upbeat outlook, including a prediction that global seaborne coal demand should increase by 50 million tonnes in the year ahead and that an additional 75 gigawatts of coal-fired power generation would come online.

Further into the future, Boyce sees even greater demand for coal and coal-fired power, which can only be good for mining companies able to compete in a market oversupplied with coal.

In the US, which has been particularly hard hit by rising gas production from unconventional sources such as shale, there was a strong improvement in demand for coal as electricity producers switched back because of a sharp rise in the price of gas.

“We now expect that during 2013, coal will recapture the vast majority of its 2012 demand that was lost to natural gas,” Boyce said.

That comment, lost in the Peabody report and ignored by most news outlets (except ILN) is one of the most optimistic observations The Hog has seen in the past year because it points to US coal staying inside that country rather than flooding the international market.

On the other green shoots spotted over the past few days the rise in coal consumption in Britain has quietly slipped by without too many people noticing.

However, over the past 12 months coal use in the overall production of electricity rose from a 30% share to 40%, which is a dramatic increase attributed to cost competitiveness and uncertainty about natural gas supplies.

The outlook for UK coal remains clouded by high costs and small mines.

However, it simply means there is a growing opportunity for exporters to the UK as other power sources struggle to meet demand.

The third green shoot, ongoing work at Hay Point, is the least impressive though the fact Calibre Group’s maintenance division picked up a $140 million contract from the BHP Billiton Mitsubishi Alliance was a sign some sort of normality in the industry might not be far away.

Business as usual is not the way to see the point reached in the coal industry.

It is more a case of the downward spiral approaching a turning point as cost-cutting does its unattractive work and demand stabilises.

Once the bottom is reached – and that might be sooner rather than later – the coal industry can move back into growth mode.

That said, no one should expect a rapid return to the boom years. They will remain a memory for some time yet.

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