National Australia Bank revealed in its latest commodities update this week that Australian thermal coal exports have risen 7.2% year on year in the first eight months of 2014, to 131 million tonnes.
It continues a trend noted by the Bureau of Resources and Energy Economics, which last month forecast Australian thermal coal production to increase at a moderate pace over 2014-15 and 2015-16.
BREE said announced mine closures would be “more than offset” by increased output from projects completed in previous years and producers increasing production to reduce unit costs to remain profitable.
It said lower coal prices had also reduced the incentive to invest in exploration, with many companies minimising their exploration activity as part of cost-cutting exercises.
“Australia’s coal exploration expenditure in 2013-14 was around $400 million, 27% lower than 2012-13,” BREE said.
“In the June quarter, expenditure was $81 million, down 32% from $120 million in the June quarter 2013.”
The production glut will only get worse.
BREE projects production growth to accelerate from 2016-17 as several projects completed during 2015 and 2016 approach full capacity, including Whitehaven Coal’s 10.9 million tonne per annum Maules Creek project and Idemitsu Kosan’s 3.5Mtpa Boggabri expansion.
NAB said thermal coal spot prices continued to drift lower in early September – down from recent levels of about $US70 ($A78.94) per tonne to $65.80/t (at the port of Newcastle) – the lowest level since May 2009.
“That said, there may be a seasonal element in current trends – given a lull in demand post the northern summer and ahead of purchases for the winter,” NAB said.
“Stockpiles at Qinhuangdao, China’s largest coal port, edged down in August – in line with seasonal trends.”
NAB said China’s imports of thermal coal had continued to weaken in recent months.
In the three months to August, thermal coal imports were about 13% lower than the same period in 2013.
In the first eight months of the year, imports were about 2% lower year on year.
The bank reiterated industry claims that few Australian producers were likely to be significantly impacted by China’s new policies to address pollution concerns, which will restrict production, consumption and import of high ash/high sulphur coal from the start of next year.
Reuters suggested that power plants – the country’s largest consumers of coal – might also be exempt.
“Sustained weakness in spot markets highlight some potential downside to our forecast for contract prices, which remain unchanged at $80/t for the next Japanese financial year commencing April 2015,” NAB said.
“However, prices could gradually recover as purchasing increases ahead of the northern winter.”