BHP tentatively invests in Australian coking coal

Australia's largest coking coal producer BHP Mitsubishi Alliance (BMA) has applied to extend its Caval Ridge mine, as rallying coking coal prices and changes in trade flows see investment return to the sector despite Beijing's informal ban on Australian coal imports.

Caval Ridge produced 7.8mn t of coal in the year to 30 June, down from 8.7mn t the year before, as the restrictions on exports of Australian coal to China caused Australian producers to ease output while trade flows adjusted. UK-Australian mining firm BHP set an unambitious metallurgical coal production target of 70mn-78mn t on a 100pc basis for the 2021-22 financial year to 30 June, based partly on its assumption that Beijing will retain its restrictions on Australian coal for years to come.

BHP's assumption appears to be playing out, with Beijing maintaining its informal ban despite Australian export metallurgical coal prices more than doubling since May to record highs and Chinese buyers continuing to pay a further premium to secure non-Australian coal.

"The fact that Beijing's coal policy on Australian imports is not changing despite record high coal prices, leads me to surmise that there is a high degree of determination on the Chinese side," Swiss bank UBS commodity analyst Lachlan Shaw said at a roundtable last week.

Both sides have adjusted to the trade impasse and Australian producers are bedding down sales relationships with new customers outside of China, giving them more confidence to invest in at least maintaining capacity even if it may take time for the supply response to develop more fully.

BHP has applied to extend the mine life of Caval Ridge to 2056, from a current 2025 closure timeline, at a rate of 15mn t/yr run of mine. It has not applied to expand the 11.5mn t/yr coal handling and preparation plant, implying that it does not currently plan to increase overall annual sales capacity from the mine.

BMA, which is a 50:50 joint venture between group BHP and Japanese trading firm Mitsubishi, had previously looked at an opportunity to further expand the Caval Ridge washing plant to unlock a further 5.7mn t/yr of production capacity. But this is not part of the latest proposal, as the firm continues to develop new markets and firm its degree of comfort with their longer term appetite for its products.

Argus last assessed the premium hard low-volatile coking coal price at $407.65/t fob Australia on 24 September, up from $109.25/t on 10 May. It assessed the hard mid-vol coking coal prices at $345.35/t fob Australia, up from $107/t on 10 May.

By Jo Clarke

Metallurgical coal prices $/t