COLUMN-Australian coal miners running out of costs to cut – by Clyde Russell (Reuters India – August 13, 2014)

Aug 13 (Reuters) – Coal miners in Australia have spent the past two years desperately cutting costs in a bid to survive falling prices, but this strategy is running out of steam.

While coal miners have been successful in lowering costs, they still haven’t managed to do it anywhere near as fast as prices have declined, and now the scope for further costs reductions is limited.

It’s likely that mining costs will start to rise again in the next year or two as the current round of cost-cutting has led to under-investment and a focus on extracting the easiest, or cheapest, to mine coal.

While coal miners are by nature a tough bunch, the prevailing sentiment at this week’s Coaltrans Australia conference in Brisbane was that prices need to increase soon or more mines will have to be shut, or placed on care and maintenance.

Data from consultants CRU illustrates the problem for coal miners in Australia, which is the world’s largest exporter of coking coal used in steel-making, and number two in thermal coal used in power plants.

This shows that mining costs have fallen, but only marginally, with site costs in New South Wales state dropping from around $65 a tonne in 2012 to $63 a tonne this year, while those in the other major producing state, Queensland, fell from about $61 to $60.

At the same time, the price of spot thermal coal at Newcastle port in New South Wales, an Asian benchmark, has dropped 19.3 percent this year to $69.59 a tonne in the week to Aug. 8.

The Newcastle price has rallied recently from its year-low of $67.89 a tonne on July 25, but it’s still down a massive 49 percent from its post-2008 recession peak of $136.30 in January 2011.

The situation is worse for coking coal, with spot cargoes currently going for about $114 a tonne, which is down from around $133 at the start of the year, and almost two-thirds below the mid-2011 high of around $330 a tonne.

The dramatic slide in prices was mainly because miners reacted to the post-2008 rally by putting on more supply, a situation that has persisted as they try to lower unit costs by boosting output, even as demand growth from top importer China flatlines.

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