Coal sector feels Asian heat

Business Asia, Nov 2, 1998

The full impact of Asia's economic crisis is about to strike Australia's struggling A$10 billion a year coal export industry, with price cuts of 20 per cent or more now looming for 1999-2000 contracts.

Producers, caught on a treadmill of tonnage hikes to compensate for falling prices, face an even worse outlook with reductions of up to US$10 a tonne for coking coal exports, or about 20 per cent on the existing benchmark price of US$51 a tonne.

Steaming coal producers face price cuts of up to US$8 a tonne, or about 23 per cent on the US$34.50 a tonne benchmark, the Coal Forecast '99 conference was told recently in Brisbane.

"Current signs of slowing world economic growth spell bad news for an early Asian economic recovery. The downside risks are growing and coal demand could easily stagnate or fall again in 1999,' Macquarie Bank commodities analyst Mr Jim Lennon said.

Less than one month ago, industry observers were forecasting price cuts of 10 per cent for steelmaking coking coal and 15 per cent for power-generating steaming coal.

The latest downgrade in the 1998-99 outlook comes less than one month before producers and buyers meet in the opening event of the negotiating season, the Australia-Japan Coal Conference in Tokyo.

The conference is the first shot in negotiations for Australian coal exports to Japan for its April/March fiscal year, which then act as the benchmark for Asia-wide and worldwide traded coal.

Mr John Maitland--national secretary of Australia's militant coal mining union, the Construction, Forestry Mining and Energy Union--said the industry faces a shrinking number of producers turning out huge volumes at negligible prices.

This would contribute to the "inarticulate rage" of ordinary Australians, as demonstrated by the recent rise of Pauline Hanson's populist One Nation Party.

Mr Lennon said Australian producers appear to have successfully pursued strategies of taking market share from other suppliers and exporting further afield than Asia.

"During the first half of 1998 Australian suppliers have managed to increase market share in the main Asian markets through intense price competition," he said.

Exports to Japan, Taiwan and South Korea are up by 7 per cent on a year-on-year basis, with the biggest gain achieved in the Korean steaming coal market. - Reuters