--Clyde Russell is a Reuters columnist. The views expressed
are his own.--
By Clyde Russell
LAUNCESTON, Australia, May 27 Like a pot of
water being slowly brought to boil, it's taken a long time for
Australian coal miners to reach the point where the pain becomes
too much to bear.
In recent weeks a slew of announcements of mine closures,
production cuts and job losses has served to underscore that
ultimately the sustained low-price environment would have to
result in lower output from the world's largest coal exporter.
So far the announced closures have been modest, but the
chances are increasing that they are merely the harbinger of
more cutbacks in the beleaguered coal industry.
The cost of producing about half of Australia's thermal coal
and about 45 percent of its coking coal is above the prevailing
prices, Morgan Stanley said in a report on Monday.
The spot price of thermal coal at Newcastle Port
, an Asian benchmark, was $74.33 a tonne in the week
to May 23, close to a 4-1/2 year low of $72.98 hit in March. It
has lost 45 percent since the post-2008 recession high of
$136.30 reached in January 2011.
Prices for coking coal, used in steel-making, are currently
around $116 a tonne, about 35 percent of the $330 commanded in
mid-2011 when supplies from Queensland state were disrupted by
flooding and demand from Chinese steel mills was robust.
Up until recently most Australian coal miners have been
trying to ride out the weak prices by pursuing a combination of
output gains and cost-cutting in a bid to lower per unit costs.
This has probably exacerbated the problem by increasing
production at a time when the global seaborne coal market is in
But now some of the miners have thrown in the towel and
started to close output at higher cost facilities.
Glencore Plc said on May 22 it will close its
Newlands underground coal mine in late 2015, opting not to
extend the life of the mine, which produced 2.75 million tonnes
of thermal coal last year.
In March, the global commodities giant said it would suspend
operations at the Ravensworth underground mine, placing the
facility, which produced 2.1 million tonnes of semi-soft coking
coal in 2013, on care and maintenance.
BHP Billiton and its partner Mitsubishi
said in February it would cut 230 jobs at their Saraji coking
coal mine in Queensland, in a bid to improve competitiveness of
the 8 million tonnes a year operation.
Brazilian miner Vale said on May 16 it would
close its Integra coal mine in New South Wales state, costing
500 jobs, while Rio Tinto has cut jobs at its Hail
Creek mine in Queensland.
So far these closures haven't made much impact on
Australia's coal exports, although this isn't a surprise given
that the process of idling output has only just started.
CLOSURES UNLIKELY TO BOOST PRICES
Shipments from Newcastle, the world's coal export harbour,
did drop in the week to May 26, but total exports for the month
are projected at 13.35 million tonnes, which would be the
highest monthly total this year.
The Bureau of Resources and Energy Economics said in its
March quarter report that exports of thermal coal should rise to
200.6 million tonnes in the 2014-15 fiscal year from 195.4
million tonnes in 2013-14, and those for coking coal to 178.9
million tonnes from 176.8 million tonnes.
These are fairly modest increases, and are unlikely to be
met if the recent closures and cutbacks are the start of a
But will mine closures in Australia serve to boost prices by
The answer is most likely no, because not enough production
will leave the market to alter the current over-supplied
While imports by top buyer China have held up, dropping by
only 2 percent in the first four months of 2014 compared with
the same period in 2013, this is likely because prices have been
cheap enough to compete with domestic supplies.
Overall, the forecast is for Chinese imports in 2014 to be
steady near last year's level of 267 million tonnes, with modest
increases for India, Japan and South Korea, Asia's next three
But the gain in demand will be nowhere near enough to eat
into the market surplus, which just increases along with any
price gain as higher-cost producers in countries like the United
States will export into any rally.
The positive for Australia's coal mining industry is that
those that do weather the low price environment will emerge
stronger, assuming forecasts for rising coal demand in Asia over
the next decade prove accurate.
(Editing by Himani Sarkar)