Australian coking coal producers have restated their concerns that a heavy maintenance schedule for coal railways and export terminals in Queensland will create an artificial shortage that mostly benefits suppliers outside the region.
But buyers and trading firms were more confident that rail operator Aurizon's plan to cut Queensland coal haulage capacity by 20mn t/yr or more out until 2021 will be resolved before supplies are affected.
Aurizon told its coal mining customers earlier this month that it will be less flexible in its maintenance schedule, after the Queensland Competition Authority (QCA) made a draft decision to cap the rail company's revenue at A$3.9bn ($3.05bn). This is about $1bn less than Aurizon says it should be allowed to earn.
The company said it will save on costs by setting a fixed maintenance schedule rather than arranging it at the convenience of mining firms. Aurizon also cut its forecast coal haulage volumes to 210mn-220mn t for the 2017-18 fiscal year ending 30 June from 215mn-225mn t previously. It told investors that the actual impact could be as much as 20mn t/yr through to 2021.
An Australian coking coal producer said it was unacceptable that the Aurizon maintenance disruptions could cause an annual supply disruption equal to last year's Cyclone Debbie. The storm made landfall in Queensland and flooded railways, reducing coal haulage by 10mn-20mn t and lifted premium hard coking coal prices above $300/t fob Australia.
"It is possible that it could play out like that, but 20mn t/y is way too large believe. A miner would treat any supply impact like that as a breach of contract on the part of Aurizon," another producer said.
Rail capacity cuts will not affect all Australian mining firms equally, said an Australian coking coal and pulverised coal injection grade producer. A smaller producer with no allocated rail capacity on Aurizon's network might face a more pressing problem than a larger producer for instance.
Australian conglomerate Wesfarmers was among the first to reflect Aurizon's maintenance plans in its coking coal sales guidance, narrowing expected sales from its Curragh mine to 8.5mn-8.8mn t from 8.5mn-9mn t previously for the 2017-18 fiscal year to 30 June.
Suppliers are also studying maintenance plans for the Dalrymple Bay Coal Terminal (DBCT) in Queensland starting in April, which have added to concerns of a supply bottleneck. Congestion at the port of as much as 47 vessels in December contributed to a price rise above $260/t fob Australia but has since eased to about 26 vessels.
DBCT will shut berths No.3 and No.4 for maintenance during 9 April-4 May, while berth No.1 will be closed for a 24-hour period before the other shutdowns. Berths No.3 and No.4 had a year-to-date throughput of 3.36mn t and 2.2mn t respectively based on the capacity of ships loaded, while berth No.1 had a throughput of 2.85mn t on the same basis. Since unaffected berth No.2 had a year-to-date throughput of about 4mn t, the 9 April-4 May disruptions will cut the ports loading capacity by nearly half during that period.
"Since prices are high, mines are expected to produce more in the first and second quarters, which can create bottlenecks that keep prices above $200/t fob Australia, probably something close to $220/t," a Japanese trader said. "With the maintenance schedule at DBCT, we will hope there is no simultaneous impact from Aurizon or else it could be a major disruption to premium hard coking coal supply."
Few Australian producers have commented on Aurizon's maintenance plans, but many have already made their discontent directly to Aurizon.
"We are keeping a close eye on the situation. It's normal that buyers will be curious about how things are developing, but we are working hard behind the scenes and are ready to take appropriate action if the need ever arises," another PCI producer said.
Aurizon's maintenance schedule for the year began in February with a 12-hour maintenance shutdown on the Goonyella line on 20 February. The western part of the system was coincidentally forced to close again soon after when heavy rain hit the region, highlighting that Australian supply also remained under threat for the duration of the January-March Queensland cyclone season.
"The Aurizon issue is a long-term structural thing, but there is no way it will have the kind of impact they are implying. It is just a flash in the pan that will be resolved soon enough," a Singapore-based trader said. "I'm personally a lot more worried about the weather."
Producers also suggested that Aurizon's controversial maintenance plan is a means of passing on blame to the QCA for not approving its proposed revenue scheme. The QCA will be inviting submissions from interested parties on the issue until 12 March before making its final ruling.
"This whole controversy is a lot of arm twisting and position taking. But the whole system isn't fair to buyers, producers or even Aurizon itself," an Indian buyer said.
