South32 ramps up Illawarra output with improved specs

Australian mining firm South32 is ramping up production of its premium mid-volatile Illawarra coking coal brand with improved specifications that could attract higher prices.

The Illawarra specification offered by South32 for the April 2019 to March 2020 fiscal year will have a higher coke strength after reaction (CSR) of 73-74, from 73 CSR previously, and an increased fluidity of 3,000 dial divisions per minute (ddpm), up from 2,000 ddpm.

The changes will be achieved by blending South32's 76 CSR Wongawilli coking coal at a 50:50 ratio with 65 CSR coking coal from its Appin mine. The previous blend ratio was 25:75.

"The current spec is better than before. I think South32 could enjoy strong premiums in the spot market with this product," a South Korean steel producer said.

The new Illawarra specifications show volatile matter at 24pc, up from 23.5pc previously, although ash content is unchanged at 9.5pc (air dried). Sulphur content has increased slightly to 0.49pc (ad) from 0.45pc, while phosphorus has fallen to 0.045pc from 0.055pc on the same basis.

Potential buyers' primary concern is that South32 could ask for a much higher price to reflect the new specifications.

"The miner is hinting at raising the offer price as a result of this better quality coal, and with that in view I do not think we will be very keen on signing a contract with them," a Japanese steelmaker said.

Another steel producer in northeast Asia said Illawarra's history of production issues could still put off some potential buyers.

South32 has suffered geological and technical problems at its Appin mine since mid-2016, including gas leaks, a ventilation system failure and an underground rock burst in May last year. The company has since raised production, which is forecast at 5.2mn t of coking coal in the 12 months to June from just 3mn t in the year-earlier period.

Coking coal production is expected to increase to 5.8mn t in the July 2019 to June 2020 fiscal year. South32 is planning to maintain a two-month volume of Illawarra stockpiles to buffer against any unexpected outage.