In Freight News 28/05/2015
Planned Australian thermal coal production from the Galilee Basin, while not bound for the same Asian markets eyed by Powder River Basin producers, could still displace PRB exports over the next several years, sources familiar with the thermal coal export markets said.
With current FOB Newcastle 6,300 CV kcal/kg GAR seaborne thermal coal exports mired in a slump that has seen thermal coal prices drop 20.8% in the last year, to $58.60/mt, increased supply from the Galilee Basin would only make the problem worse, one Western coal producer said.
“It’s a very, very challenging market right now,” he said. “In the current environment, seaborne thermal coal producers can’t persist because at least 30% are losing money.”
Most PRB producers export thermal coal to Northeast Asian markets. While India and other Southeast Asian markets would be the main market prize for the Galilee mines, they could push Indonesian, South African and other coal competing out of India into new markets, one industry consultant source said.
“Since PRB coal heat value is typically higher than Indonesia, but lower than Australia, the NE Asian markets could utilize a blend of Indonesian and Galilee Basin coal to mirror a PRB product, except at a lower price,” the consultant source said in an email.
“I foresee international thermal markets worsening as a result of this compounding oversupply and envision the same thing happening in the Asian thermal market as we’re currently seeing in the Illinois Basin — new low-cost supply with no sales commitments simply pushing higher-cost production out of the market.”
GALILEE PROJECTS COULD START BY 2018
Several development projects are planned in the Galilee Basin, with Indian mining company Adani planning the Carmichael mine that could start producing 10,400 Btu/lb thermal coal as early as 2018, said Andy Roberts, principal analyst for Wood Mackenzie.
Production at the mine could ramp up to 38 million mt annually by the mid-2020s, Roberts said, noting the mine would have a roughly 400-km rail line linking it to the Abbott Point Terminal off the coast of Queensland.
Another planned project is an Indian-Australian joint venture between GVK and Hancock, which, like the Adani project, would include a roughly 300-km rail line to the Abbott Point Terminal off the coast of Queensland.
“These are all big operations,” Roberts said in an email. “There is still significant risk: the market, obviously, but also permitting and financing.”
Roberts does not expect the Galilee mines to have “any immediate impact” on PRB coal because they compete in different markets, he said.
But bringing that coal online could impact decisions made by power generators in the future to build power plants that burn bituminous instead of subbituminous coal, he said.
SIGNAL PEAK’S MINE DIRECTLY IMPACTED
The most direct impact could fall on Signal Peak’s Montana mine near Roundup, which produces bituminous coal at roughly the same heat levels as the proposed Galilee mines.
“I expect … Galilee Basin [coal] to directly displace [Signal Peak] coal, and a blend of Galilee Basin and Indonesian coal to displace PRB coal, whether directly or indirectly,” the consultant source said.
Signal Peak annually exports more than 5 million mt of bituminous coal, with an average heat content of 10,250 Btu/lb to Korea, Chile and Japan through the Westshore Terminal in British Columbia, said Mike Dawson, a Columbus, Ohio-based spokesman for the Montana mine. Dawson declined to comment on the impact of the proposed Australian mines on the Signal Peak mine.
