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World Coal
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March 2016
Coal News
Coal News
L
ast year saw the largest contraction
in the seaborne metallurgical
market since 2011, when flooding took
out a significant chunk of Australian
supply. Overall, the market shrunk by
5% to 280 million t according to figures
from Macquarie Research. Australia
accounted for 66% of the market supply
– a number that could rise again this
year to 68% according to Stephen Duck,
Senior Consultant – Steel Raw Materials
at CRU. Thereafter, forecasts diverge
with Macquarie seeing Australia’s share
rising to 70% by 2020, while CRU expects
Australia to account for 64% as exports
rise from other producers, including
Mozambique, Russia and Indonesia.
Whatever the exact figure, however,
Australia’s dominance of seaborne
metallurgical coal supply will continue
as its mines – particularly the
BHP Billiton Mitsubishi Alliance mines
– occupy most of the lower end of the
cost curve. Only some Russian and
Teck’s Canadian operations boast
comparably low costs. In contrast, all US
metallurgical production is cash negative
at current prices, according to Macquarie.
This cost advantage has kept
Australian exports rising despite falling
demand from China, as Australian
cargoes displaced US cargoes in markets
such as Europe, where Australian coal
took its highest share of imports since
2007. Australian exports to India (where
they comprised 84% of total imports),
Brazil and South Korea also rose.
Meanwhile, US metallurgical coal
exports were down to 38 million t in 2015
from 59 million t in 2012 and are
expected to hit just 19 million t in 2020.
Strengthening of the greenback against
the Australian dollar, an uptick in mine
closures as part of Chapter 11 bankruptcy
proceedings or a weaker demand picture
could see US exports shrink further.
This decline in US metallurgical coal
exports is posing several challenges to
steelmakers. The inability to hedge
against another extreme weather event
taking out Queensland’s coal production
is a worry. Macquarie noted that US
exports to Asia were flat despite the
lower general trend – a fact attributed to
“Asian buyers still wanting some supply
diversification away from Queensland
as a hedge against any weather-related
supply disruptions”.
There is another more technical
worry for steelmakers in the falling
supply of US coal, as Duck explained to
World Coal
: “The fall in production from
the US does reduce the availability of
certain types of coal,” said Duck. “US
coals are sought after by steelmakers for
their properties, particularly their
fluidity. Asian steelmakers are worried
about the future supply of high-fluidity
coals not just because US mines are
closing but also because BHP Billiton’s
Gregory mine is shutting this year.
European and Brazilian steelmakers also
buy US coal specifically for the fluidity.”
Average fluidity levels of about
800 – 1000 dial divisions per minute
(ddpm) are widely seen as required to
produce good-quality coke. Many
Australian hard coking coals fall below
that average, meaning mills have to
blend in higher-fluidity coals to reach
the required level. The tightening
supply of such coals has already had
some impact on pricing: last year, Platts
reported the prices achieved for
higher-fluidity coals were holding up
better relative to other metallurgical
coals.
“Changing coal supply is also
problematic for steelmakers,” concluded
Duck. “Coke quality is fundamental to
blast furnace performance and targeted
quality specifications for coke hinges on
the delicate blend of various coal types,
which mills are often reluctant to
change. Consistency and continuity of
coal quality and blending are key to
blast furnace performance.”
Beyond Australia and the US,
Mozambique metallurgical coal
production is likely to ramp up to 2020,
despite ongoing infrastructure
challenges: “Development of the Nacala
logistics corridor has been slow to‑date,”
commented Duck. “Workers at the mine
also went on strike in mid‑February and
this raises more uncertainty over when
exports will take of from here. We’re still
expecting exports to rise this year, but
there is significant risk around this
forecast. By 2020, we forecast
Mozambique to be exporting almost
20 million tpy, accounting for 7% of
seaborne supply.”
That leaves Canadian and Russian coal
competing with the Aussie juggernaut
– but without the scale. According to
Macquarie, Canadian supply into the
global market will total 26 million t this
year, down from 27 million t in 2015;
Russia’s, just 13 million t, steady with last
year. Australia’s contribution will be
183 million t, down from 185 million t in
2015.
“Australian producers’ strategies will
continue to be focused on improving
mining productivity, which is expected to
sustain high output at operations,”
concluded Duck. “However, we do not
expect to see the same rate of
productivity gains at mines that we’ve
seen in the last couple of years.
Therefore, the potential to squeeze out
more tonnes at existing operations is
limited. On the other hand, we expect
production to ramp up at Anglo
American’s Grosvenor mine and
Whitehaven’s Maules Creek mine,
which both came online last year.”
INTERNATIONAL
Falling US met coal exports are a potential headache for steelmakers
