LAUNCESTON, Australia – The new year has started positively for Asian coal, with prices rallying from a 5-1/2 year low, Chinese imports jumping to the highest in 11 months and renewed merger and acquisition interest.
While these are undoubtedly welcome developments for a sector that has witnessed four years of falling prices, there are still serious questions as to whether these swallows really do indicate a summer of good fortune ahead.
The spot price of thermal coal at Australia’s Newcastle port, an Asian benchmark, rose to $62.91 a tonne in the week ended Jan. 16, up 3 percent from $61.04 the prior week, which was the lowest since April 2009.
The obvious caveat here is that prices are still some way below the breakeven point for many miners in top exporters Australia and Indonesia, and it will take weeks of sustained gains to bring the sector as a whole back into the black.
Chinese imports were 27.22 million tonnes in December, the highest since January last year, again a positive sign but not enough to mask that imports for 2014 as a whole were down 10.9 percent to 291 million tonnes, the first annual drop in a decade.
The main problem for miners exporting to China is the uncertainty gripping the industry in the world’s biggest consumer, importer and producer of the fuel.
This is well illustrated by the imposition of the new coal quality standards this year, which sees limits imposed on sulphur and ash content.
The problem is that some industry sources report the new rules aren’t being applied universally, with certain cargoes being singled out and others not being inspected, and differences in the stringency of inspections at various ports.
The Minerals Council of Australia chief executive Brendan Pearson was quoted by the Australian Financial Review on Jan. 12 as saying there appears to be some game-playing by Chinese officials over the new rules.
He also raised concern that the regulations were being used to favour domestic coal miners, who have also struggled with low prices and some 70 percent are reputed to be unprofitable at current prices.
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