CHART: Why Australia's Thermal Coal Sector Is Set For A Continuing Squeeze

BREE is forecasting coal export volumes to overtake value.

Australia’s Bureau of Resources and Energy quarterly report is out, something that’s required reading for anyone interested in the nation’s resources sector.

The BREE report also provides some meaty insights into the broader Australian economy.

This chart shows the country’s chief resources economic advisors are expecting the thermal coal production to increase over the next five years at an annual average rate of 3.6 per cent to 296 million tonnes.

Critically, it also shows BREE is expecting thermal coal export volumes will increase faster than their value, as the price is expected to fall.

BREE estimates the value of exports will increase 6% to $17.1 billion in 2013-14 with the higher export volumes offsetting expected lower coal prices. This is a trend that’s also affecting iron ore exports from Australia – BHP and Rio have been achieving record export volumes thanks to capacity increases from mines that are now maturing after years of development. But the iron ore price has been falling at the same time amid some softening of demand from China.

In 2015-16 coal export volumes are forecast to increase 2.7% with earnings declining 5.2% to $16.2 billion. This will squeeze margins across the sector.

Additional capacity will come from new projects coming online, including Whitehaven Coal’s Maules Creek coal mine which will add an extra 10.8 million tonnes a year and Peabody Energy’s Metropolitan mine which is expected to add an additional 1.5 million tonnes per annum.

Throughout 2013 the Newcastle FOB coal spot price averaged $US84 a tonne.

Kicking off 2013 at about $US91 a tonne the price of coal progressively fell to around $US77 a tonne by the end of September as additional tonnes began flowing through to market.

The coal price traditionally rallies at the end of the year due to seasonal Chinese buying which coincides with the northern hemisphere winter and Chinese New Year.

Thermal coal exports jumped 10% in 2013 to 188 million tonnes, with the volume boosted towards the end of the year in line with Chinese demand.

Earlier this month thermal coal was around $US74 a tonne, at that level some marginal coal producers are being either forced to close or boost production to reduce unit costs as many are currently locked into take-or-pay contracts for infrastructure services.

BREE is predicting consumption to rise but cautioned extra supply is going to see prices drop throughout 2014.

There’s more here.

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