Aurizon warns of headwinds for Australian coal exports

Australian rail firm Aurizon expects its coal haulage volumes to be at the bottom of its forecast range of 210mn-220mn t in the 2017-18 fiscal year that ends on 30 June, and has warned that further headwinds could cut Australian coal exports in next financial year.

Aurizon cut its forecast from 215mn-225mn t in February because of changes to its maintenance regime in Queensland to compensate for lower regulator-approved revenues in its networks business. It expects these maintenance issues to continue to reduce the capacity of the Queensland coal haulage network by 20mn t/yr in 2019, with no negotiated settlement in sight.

The company is also facing possible industrial unrest as it seeks to renegotiate enterprise agreements across its business in Queensland and New South Wales (NSW) this year. It is already dealing with the prospect of protected industrial action from 33 train controllers, and more unrest could follow as it seeks to cut wage increases in its enterprise agreements from 4pc/yr to 1-2pc/yr. It is also looking to split enterprise agreements for its coal haulage operations from the remainder of its business, which is likely to anger unions.

Aurizon is forecasting a 2pc/yr increase in Australian coal exports for the next decade, but its ability to support this is at risk from the potential industrial action and the less flexible maintenance regime that it has put in place in Queensland. The biggest impact from this is likely to be on smaller coal mining firms and new operations that have not yet secured rail access.

Aurizon has contracted volumes of 232mn t in 2017-18, rising to 246mn t next year and 253mn t in 2019-20. But it is unclear how it will be able to meet these increases, given the headwinds that it has outlined for 2018-19 and possibly 2019-20.

The change in the company's maintenance regime has not yet been reflected in the port shipping figures, but Aurizon maintains that stockpiles are rising at mines, reflecting lost shipping opportunities. It said 5mn-6mn t of potential coal shipments will have been disrupted by the maintenance regime between mid-February and the end of June. Some mines have begun curtailing production as the stockpiles have increased, Aurizon told investors today.

The company is lobbying to increase the regulator-approved revenues its network is allowed to earn, raising the possibility it may be talking up the disruption caused by its maintenance changes to put additional pressure on the regulator.

Total haulage across Aurizon's Queensland network by all rail operators was 116.6mn t in July-December, up from 112.9mn t a year earlier and 97.9mn t in January-July 2017, when Cyclone Debbie closed the Goonyella line for almost a month. The network has nominal capacity of 225mn t/yr, but this could be cut by at least 20mn t/yr to 205mn t/yr if the regulator does not change its view on regulated returns, according to Aurizon.