Coal Diggers Cashing in as Costs Up $95 a Ton for Buoyant Japanese Steelmakers in 2005

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). Australian coal mining companies are gearing up for a new wave of greenfield projects in the face of the increasing demand from Japan, which is experiencing a knock on effect from the voracious demand from China for steel, which has caused coking prices to rise to a record $120 a ton, double the price in 2004.

Japanese steelmakers could raise their prices for steel plate for automakers, shipbuilders, and electronics manufacturers by up to 20% this year. Despite, and perhaps because of, critical supply shortages to the domestic market in 2004, the steel industry has shown bullish results. This year, with the coking coal price doubling, iron ore going up 71.5%, and soaring freight rates, steel makers will have to pass on cost increases totaling about $95 a ton. But the increase in Chinese steel demand to 340 million tons in 2005, up from 311 million tons in 2004 should keep the heat on production and supplies to the Japanese domestic market.

BHP Billiton (NYSE:BHP )(Melbourne, Australia) and Mitsui (NYSE:1518 ) (Japan) have announced that they will develop the new Poitrel coal mine near Moranbah in Queensland, which will have a production capacity of three million tons per annum. The output will be directed at the export market for steel producers, mainly in Japan. The mine could start operations as early as 2006. BHP Billiton will hold 20% of the venture and Mitsui 20%. The Japanese company is putting $55 million into the project.

The project is estimated to have 70 million tons of coal reserves. Excel Coal has entered into an agreement with the mine developers to share railway and road infrastructure between Excel's (NYSE:EXL ) (Sydney, Australia) Millennium mine and the Poitrel project. BHP Billiton could develop the Daunia project adjacent to the Poitrel site in tandem with the new mine.

BHP is already in the BHP Billiton-Mitsubishi (NYSE:7011 ) Alliance (BMA), which is a joint venture (JV) between the Australian and Japanese companies and the JV operates seven coal mines and the Hay Point Coal Terminal in central Queensland. An eighth, Broadmeadow, also near Moranbah, is scheduled to start operations in the second half of 2005. The $67 million project will have a capacity of 3.6 million tons of high quality coking coal.

In New South Wales, Centennial Coal (NYSE:CEY ) (Sydney, Australia) is looking to move the company into the export market through its Anvil Hill project which is scheduled to produce 10.5 million tons per annum of thermal coal. Centennial is discussing approvals with government agencies, which should lead to an environmental impact study (EIS) by the end of 2005. Development approval is being sought for 21 years to cover construction and operation of the opencut, a coal handling and preparation plant, stockpiles, maintenance, and administration buildings, as well as a rail loop.

The company is eager to recieve approval for the project, in order to meet a supply contract with Macquarie Generation, which covers the domestic supply of 30 million tons of thermal coal over twelve years. The remainder of the output will be directed to hot priced export market.

Meanwhile, federal treasurer Peter Costello has said that the Australian Competition and Consumer Commission (ACCC) could intervene in the bottleneck of coal ships off the major Queensland port of Dalrymple Bay. He said that 50 ships were waiting to be loaded with coal, with delays of up to 23 days and coal companies were paying $2 million a day in demurrage costs. With head banging going on between the ACCC and the Queensland government, the federal body may intervene over the head of the state government. At the heart of the matter is a 20-month-old dispute between the port company and the mine companies on the building of a new loader, which would take 12 to 24 months. For related news item see - January 14, 2005 - Australia and South Africa's Chinese Resource Export Supply Chain Tackle Choking Fit.

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