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Price plunge as Chinese leave thermal coal out in the cold

Thermal coal exporter New Hope Corporation says China’s shipment squeeze on Australia is putting downward pressure on prices in all markets in the Pacific.

Managing director Shane Stephan said coal was being diverted to other markets where demand remained strong but at lower prices, because Chinese demand had dried up.

New Hope revenue from exports to China was down sharply to $11.8 million over the six months to January 31, compared with $78.7 million for the same period last year.

However, this was more than offset by increased sales into Japan, Taiwan and South Korea as New Hope’s revenue jumped 21 per cent to $616.7 million.

Mr Stephan said China was such a big producer and consumer that its actions dominated whatever happened in the Pacific market for thermal coal, with the biggest price falls evident for lower-grade product.

“It only needs to have a short period of imbalance between production and consumption and it can totally swamp the seaborne trade in the Pacific,” he said.

“So you end up with a very volatile 5500 kcal/kg price.

“That is what is going on now. Currently, China is not demanding imports of thermal coal and so that coal is finding another home somewhere else.”

Although there was no denying the impact that China’s actions, which have included long delays in processing imports, have had on price, Mr Stephan said the situation was nothing new and showed coal exporters had to be nimble and willing to shift market focus.

Asked whether he thought the Chinese import bottleneck was politically motivated, Mr Stephan said the drivers were not clear.

“It is not transparent … it has happened before and it will happen again,” he said.

The New Hope share price fell more than 11 per cent to $3.89 amid the concerns about Chinese demand and the company’s ongoing battle to secure mining approvals in Queensland.

Washington H. Soul Pattison-controlled New Hope’s earnings before interest, tax, depreciation and amortisation, before non-regular items, for the first half was $285.1 million, up 31 per cent on the same time last year.

Net profit after tax before non-regular items jumped 33 per cent to $159.8 million following New Hope increasing its share in the Bengalla mine in the Hunter Valley to 70 per cent after Rio Tinto sold its stake for $US606 million ($854 million).

New Hope is moving to 80 per cent ownership with the soon-to-be completed acquisition of Mitsui’s 10 per cent share.

Increased production at Bengalla saw the mine deliver a net profit after tax of $126.6 million, while Queensland mining operations contributed a NPAT of $110.9 million in a record first half for New Hope in which it declared a fully franked dividend of 8¢ a share.

Approval hurdles
Mr Stephan hit out at the approval process for new coal mines in Australia, highlighting the need for New Hope to keep up supply to its customers.

The company remains anxious to secure the necessary approvals for the continuation of the New Acland mine in Queensland after years of uncertainty.

It welcomed the Queensland Land Court decision to recommend the approval of stage three of the mine and a subsequent decision by the Department of Environment and Science in its favour, but warned “we have a number of other steps to go through before the future of the mine is secured”.

Mr Stephan said Australia was losing market share to the US and Russian competitors because of the minefield approval process.

“The approval processes for coal in Australia are incredibly challenging and complex and expensive,” he said.

“The best evidence of that is the fact that coal prices have effectively doubled in Australian-dollar terms from 2015 to now and yet we are not seeing any material change in the volume of thermal coal being exported out of Australia.”

Thermal coal exports have hovered near 200 million to 205 million tonnes for the past four years.

The Adani saga in Queensland, Rio’s exit from thermal coal, Glencore’s commitment to a production cap and a NSW Land and Environment Court ruling last month that blocked Gloucester Resources’ proposed Rocky Hill coking coal mine on the ground that it would hasten climate change, have rocked industry confidence despite some impressive profit results.

“It is so challenging to get approvals for even just brownfields extensions of mines in Australia,” Mr Stephan said.

“What is happening is that we are losing market share to Russia, we are losing market share to the Americans.

“Our customers in Asia need the coal. The demand is there when as a country we are not in a position to meet that demand, so we are losing market share.”
Source: The Australian Financial Review

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