COLUMN-Coking coal prices set for modest gains, thermal still marooned – by Clyde Russell (Reuters U.K. – July 5, 2014)

Clyde Russell is a Reuters columnist. The views expressed are his own.

LAUNCESTON, Australia, Aug 5 (Reuters) – Prices for thermal and coking coal appear poised to diverge, with the power-plant fuel remaining mired in the doldrums and the steel-making ingredient posting modest gains.

The halving of thermal coal prices since early 2011 has grabbed the most attention in the beleaguered industry, but coking coal has actually performed worse, dropping by almost two-thirds since its post-2008 recession peak in mid-2011.

The 2011 high was reached after severe flooding in Queensland state, the main coking coal producer in top exporter Australia.

Both types of coal have been plagued by oversupply, which has swamped the modest increases in demand in top importers China and India.

The problem for thermal coal has been supply hasn’t significantly been cut despite weak prices. Producers in the top two exporters Indonesia and Australia have been instead trying to cut costs and increase volumes in order to boost revenues.

Australian producers have another problem, the so-called “take-or-pay” contracts that commit them to paying for transport costs whether they actually ship coal or not.

These contracts can be upwards of $20 a tonne, meaning that as long as a miner’s loss per tonne is below that level, it’s cheaper to continue producing than it is to shut down.

This has kept Australian exports of coking and thermal coal rising despite the slide in prices.

Thermal coal has the added problem that other major suppliers aren’t cutting exports either, with Indonesia expected to increase volumes in 2014 and South Africa likely to hold exports more or less steady.

Only North American exports are contracting, with several major producers announcing mine closures or cutbacks in recent months. This will result in lower exports for both thermal and coking coal from North America, but the impact is likely to be more keenly felt in coking coal.

It appears that there is a better chance of the decline in coking coal exports from North America matching the increase in shipments from Australia.


Australia will export 175 million tonnes of coking coal this year, a gain of 2.9 percent from 2013, and 183 million tonnes in 2015, according to government forecaster the Bureau of Resources and Energy Economics (BREE).

For the rest of this article, click here: