Coal mining firms with operations in Australia's New South Wales (NSW) state and long-term export supply contracts have gained exemptions from the state government's coal reservation policy.
The NSW government announced its plans to require coal producers to reserve up to 10pc of their output for domestic use in mid-January, but has amended its position for those with long term contract obligations. Domestic sale prices will be capped at A$125/t ($87/t) under the reservation policy, which is significantly below export prices, particularly for high grade thermal coal.
Firstly, NSW will allow exporters to continue to deliver physical coal to export markets, as long as they use the proceeds to buy the equivalent of their reservation cap to supply domestic power generators. This could allow mining firms to export high-grade 6,000 kcal/kg NAR coal and buy lower grade below-5,500 kcal/kg NAR coal to supply domestic power plants. It could lead to the perverse outcome of low grade thermal coal being imported into NSW, possibly from Indonesia.
Second, in cases where coal mining firms can prove that they have well defined contracts of at least 12 months to export coal to specific users, the NSW government has either reduced or completely waived the reservation requirement.
The biggest winners from this are Japanese firms Idemitsu, Nippon Steel and Chugko Electric Power. They have been granted an exemption from the reservation policy for their 7mn t/yr Boggabri joint venture, which supplies thermal and semi-soft coking coal to the seaborne market through the port of Newcastle.
Others that have not recently supplied domestic power plants, such as Australian firms BHP and Whitehaven, have been asked to reserve 6pc of their production for domestic users, rather than the 7-10pc previously envisaged.
The special treatment of these exporting firms have angered other coal mining firms that will be required to sell more of their coal production domestically at a price cap of A$125/t.
Argus last assessed high-grade 6,000 kcal/kg NAR thermal coal at $226.08/t fob Newcastle on 10 February, down from $410.17/t on 9 December and from a peak of $444.59/t fob on 9 September last year. It assessed lower-grade 5,500 kcal/kg NAR coal at $126.84/t fob Newcastle on 13 January, down from $200.81/t on 2 September and from a peak of $287.15/t on 11 March last year.
