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The Australian dollar has been under pressure since the U.S. China trade tit for tat but there are more importers than China for Australia. Australian mining companies are seen locking in the highest Japan coal deal since 2012.

Australian Thermal Coal Exports

The Australian Department of Industry, Innovation and Science said in it's latest quarterly report that Australian coal miners are set to receive the highest supply contract since 2012 from Japanese utilities after renewed demand drove coal spot prices higher.

The forecast is that Japan’s utilities will pay $100 a metric ton for annual supplies during April 2018 to March 2019. That would be be 18% higher than the deal in 2017 and the most since 2012. Spot prices began their ascent earlier this year as strong demand came from supply concerns. Spot Newcastle coal saw its best quarter in six years after a winter freeze across Asia and the U.S. boosted heating demand and used up safety supplies.

It should be noted that there are risks such as the trade war and developed countries in Western Europe changung from thermal coal. "Export earnings are forecast to be almost $40 billion in 2017–18, before then declining. Earnings should maintain $29 billion over the forecast period."

“Going forward, strong growth in demand in emerging Asia will largely offset softer demand in the OECD, Western nations appear likely to continue to push to phase down their thermal coal use in favour of renewables and gas, the latter both for heating and power generation.” the department said.

The agreed April-March deal between Japan’s utilities and miners establishes a benchmark that other buyers and sellers will price off.

Metallurgical Coal

Australia Coal March 2018

The forecast sees prices rising for the 2018 contract prices to average $200.50/mt, up by $49.20/mt from the previous forecast. For 2019 they see a rise of $32/mt to $152.20/mt.

"Metallurgical coal prices have stayed at relatively high levels in recent months, as disruptions to Australian export supply continue to leave the seaborne market short,' the report said.

It expects supply to expand to better match growing demand and put downward pressure on prices. The price was expected to bottom out at $142.10/mt in 2020 before then steadily climbing to $162.90/mt in 2023. Rail and port maintenance issues pose a major risk to metallurgical coal exports in 2018 the report noted. The concern is a repeat of 2017 cyclones and infrastructural problems could hamper exports and drive price spikes.

"Temporary closures for maintenance at a number of berths at Gladstone and Dalrymple Bay in April and May will add to the impact of similar berth closures at Hay Point and Abbot Point in March. Of major concern, the Aurizon Network -- the below-rail operator of the Central Queensland Coal Network -- has advised that 20 million mt of capacity could be lost across the system, as it aligns maintenance operations with the Queensland Competition Authority's Draft Access Undertaking,"

The undertaking curbs annual maintenance charges that Aurizon can bill the system, miners in Queensland could be expected to build stockpiles to make sure that they are ready to transport coal when or if the rail transport system returns to previous capacity levels.

The government department raised its 2018 Australian metallurgical coal export forecast by 3 million mt from the previous quarterly to 197 million mt, and raised its 2019 forecast by 7 million mt to 201 million mt. Exports are expected to steadily climb to 212 million mt in 2023 in the forecast.

Source: Resources and Energy Quarterly

From a Sunburnt Country...

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