Coal Age

JUL-AUG 2018

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Page 36 of 51

July/August 2018 35 met coal outlook continued er sources. Prices for premium low-sulfur HCCs in China tend not to move too much due to the lack of liquidity in what is a very small sector. In contrast, weaker hard-cok- ing coals saw prices start to move higher in May, rising between RMB30/mt (US$4.43/ mt) and RMB100/mt (US$14.77/mt). Prices to Stay High Throughout 2018 The price outlook for the remainder of 2018 is likely to be shaped by supply per- formance in Australia and China. Aus- tralia's supply should improve, but the Aurizon dispute is likely to affect supplies through September at least. WoodMac further lowered the Australian export fore- cast to 180 million mt, from 182 million mt (May 2018), and around 188 million mt at the end of last year. June looked likely to be a difficult month for suppliers, and sea- borne prices could increase as port delays grew. This process has already began with the US$5/mt jump in HCC prices on the last day of May. Further rises are likely — possibly moving above US$200/mt toward Chinese equivalent prices — as buyers look to secure July deliveries during a peri- od of constrained supply. Subsequently, WoodMac expect prices to ameliorate as supply improves. Howev- er, there will remain strong pricing sup- port from within China, which it thinks will limit the downside trend. In China, an improvement in supply is expected this year, but as is the case in Australia, in the short term, there are some headwinds. The higher production in early 2018 has in part been the result of private mines operating above capacity. Some mi- nor accidents in late May likely led to in- creased safety checks in June. China's coal mine safety administration has announced inspections to ensure approved mine ca- pacities are not exceeded, with fines and production stoppages likely. This action will keep prices supported, and may limit pro- duction growth through the rest of the year. Meanwhile, ongoing environmen- tal inspections at mills are pushing up demand for low-sulfur coking coal and helping those prices to rise, despite sta- ble overall demand for metallurgical coal. WoodMac expects the price for Liulin No. 4 on a FOR basis is expected to increase slightly by RMB 30/mt (US$4.43/mt) to RMB1,630/mt (US$240.78/mt) with strong demand and stable supply during June. WoodMac's forecast now sees premium seaborne LV HCC prices fall to US$168/mt by year's end, up from its previous forecast of around US$160/mt. PCI and semisoft coking coal (SSCC) prices will continue to benefit from the strength in the hard-cok- ing coal sector. Very little spot PCI coal is available due to high demand for contract tons, and the recent rail and port mainte- nance issues. The wide price differentials between SSCC and premium HCCs should encourage their greater use, and higher margins on thermal sales should see some semi-soft diverted to that market. However, the preference for premium-coking coals seems to be limiting upside for semi-softs, and as such have not increased their 2018 prices to the same extent as PCI. There is a chance that Q2 contract prices will be settled at prices higher than the three-month trailing average spot prices of around US$145/mt and US$128/ mt for PCI and SSCC, respectively. 2019 Prices Revised Upward WoodMac has revised its 2019 prices. The firm now expects the deleveraging of the coal and steel sectors in China to last throughout 2019, keeping prices high. Inter- national steel prices will also remain close to 2018 levels, driving demand for premium coals. Despite a modest improvement in supply during 2019, and flat overall demand for met coal, Chinese prices will act to sup- port seaborne prices closer to 2018 levels. As such, the Australian LV HCC forecast has been revised to an average US$171/mt (nominal terms) for next year. Australia Licks Self-inflicted Wounds Australia's exports have been hampered by a combination of port and rail mainte- nance, which affected the Goonyella sys- tem. Excluding last year's cyclone-ravaged figures, Australia's April exports were the lowest April total since 2013. Major main- tenance on two berths at Dalrymple Bay Coal Terminal starting on April 16 resulted in throughput of just above 4 million mt, way down on the more typical port average of 5.5 million mt to 6 million mt. The April export performance means Australia has exported at an annualized rate of around 172 million mt in the first four months of the year. It is a poor start, but not untypical given Queensland's wet season. The per- formance for 2018 so far sits close to 2015 figures, when Australia ended up export- ing around 182 million mt. Exports could still reach that target but, as in 2015, it would require a very strong June performance, and greater export rates throughout the second half of the year. Un- der normal circumstances, the confidence of meeting a 182-million-mt target would be high, but the impact of rail maintenance has raised the risk of exports falling short. As a result, WoodMac has reduced its fore- cast for 2018 Australian exports from the current 182 million mt to 180 million mt. Queensland Rail Network Dispute Rolls On The impasse currently enveloping Queens- land's coal logistics remains unresolved. The Queensland Competition Authority is work- ing toward a final decision on its UT5 Access undertaking, but it is a slow process, unlike- ly to be completed before September. The UT4 agreement has been extended until the end of 2018. Meanwhile, Aurizon Network's changed maintenance regime is resulting in slowed deliveries to ports on the Goonyella system, with worse expected in June. From the outside, the relationship be- tween the QCA and Aurizon looks tense at best. The QCA is accepting submissions re- garding the impact of Aurizon's actions on coal suppliers, in an attempt to ensure the company is meeting its obligations under the current access agreement. For their part, Aurizon has made an application to the su- preme court to set aside the QCA's interim decision due to an alleged conflict of inter- est on behalf of the QCA chair, who is also chair of the Port of Newcastle. There seems to be little chance of a quick resolution. However, June could bring some chang- es in approach. Firstly, the maintenance impact on exports in June is likely to be its most severe since the operational changes were made in March. Miners on the Goo- nyella system will be desperate to export as much as possible to meet fiscal-year targets, now that work on the berths is complete and port capacity is back to normal. Any rail cancellations will be keenly felt, and all companies, including BHP, will be apply- ing maximum pressure on Aurizon to de- liver. Meanwhile, the chair of the QCA will change this month, although no announce- ment has been made on the replacement. The QCA's request for submissions, made on May 30, did at least state some mild support for Aurizon's previous re-

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