Australian haulage firm Aurizon pivots away from coal

Australian rail firm Aurizon is pivoting to mineral and agricultural product haulage to mitigate potential declines in earnings in Australian coal exports that have underpinned the firm's performance for over a decade.

Aurizon will control capital spending on its coal operations in New South Wales (NSW) and Queensland, and focus on raising productivity as it seeks to maintain margins in a coal market that is set to shrink in a carbon constrained world. This financial year the firm sent five locomotives from its NSW coal operations to its grain and iron ore operations, to release under used coal haulage capacity into its higher demand bulks division.

"Capital will be spent carefully with some assets able to be deployed into or shared with Bulk to support their growth ambitions because of coal's efficiency improvements," Aurizon chief executive Andrew Harding told investors today.

In the 2021 financial year to 30 June Aurizon expects its coal haulage volumes to shrink to levels not seen since the 198.2mn t delivered in 2016-17. It has maintained its guidance at 200mn-210mn t for this year, down from 214mn t hauled in 2019-20 and from a peak of 214.3mn t in 2018-19. Aurizon hauled 150.3mn t in July 2020-March 2021, down from 158mn t a year earlier.

The decline is strongest in its Hunter Valley operations in NSW, where a shiploader outage at the Newcastle Coal Infrastructure Group (NCIG) terminal and the Chinese ban on imports of Australian coal have weighed on demand. The outlook for Aurizon's volumes in the Hunter Valley is flat, the firm's head of coal Ed McKeiver said.

Aurizon will continue to overhaul its ageing train fleet in the Hunter Valley, despite downside risk to the outlook if thermal coal demand falls globally. But the fleet can be redeployed to other parts of Aurizon's business of potentially sold to Pilbara iron ore operators if they are not required.

Aurizon is not investing in its Queensland coal rail fleet and will rely on productivity improvements to allow it to continue delivering its contracted tonnes despite an ageing fleet.

Despite this lack of investment, Harding is confident that metallurgical coal demand will remain strong in the next 20 years as alternative steelmaking technologies are commercialised and Asian steelmakers look to capitalise on recently built blast furnaces. Asian coal fired power stations are relatively young, with an average age of 17 years and a life expectancy of over 40 years, and could continue to operate, he argues.

Around two-thirds of the coal hauled on Aurizon's Queensland Coal Network and half of the coal hauled by its trains in NSW and Queensland is metallurgical coal, with thermal coal making up the rest.

Argus last assessed premium hard low-volatile coking coal at $155.65/t fob Australia on 7 June, up from $103.50/t at the start of January. It assessed high-grade thermal coal at $120.58/t for 6,000 kcal/kg NAR on 4 June, up from $81.44/t at the start of January.

By Jo Clarke