Australian rail maintenance squeezes coking coal supply

Coking coal supplies for cargoes with loading dates from July are already showing signs of tightness as Australian rail firm Aurizon ramps up maintenance on the key Goonyella line in Queensland.

Australian producers may withhold supplies from the spot market in July in order to ensure contracts are met while maintenance is underway. Aurizon is carrying out maintenance on one section of the Goonyella line until 9 June, when it will then move the works to another section from mid-July-September.

UK-Australian mining firm BHP Billiton today offered an 85,000t cargo of Saraji with a late-July loading date to the Chinese market and was targeting a price above $200/t cfr China, despite an abundance of available spot cargoes with June loading dates. The tender initially failed as buyers resisted the increase from the current Argus assessment for premium hard low-volatile coking coal at $196/t cfr China.

"It has been known for a while that supplies from mining firms will be reduced in the coming weeks or months. It seems like this is the beginning of that," a Chinese sales agent for an Australian producer said. "Eventually we can expect them to prioritise long-term contracts, leaving very little volumes for spot."

Aurizon announced in February that as much as 20mn t of throughput on the company's Queensland coal networks could be lost annually after the Queensland Competition Authority (QCA) issued a draft decision limiting Aurizon's revenue to $3.9bn from July 2017-July 2021. This is about $1bn less than the company believes it should make.

Aurizon said the draft decision — which takes effect retroactively on 1 July — will require it to modify maintenance practices to reduce costs. The company previously sought to accommodate coal producers in its maintenance schedule, but will now need to shut down sections of its railways to perform maintenance.

Aurizon is currently appealing the QCA draft decision in Queensland's Supreme Court, but the company's monopoly on railways to Queensland export terminals leaves coking coal producers no alternative in exporting to overseas steelmakers.

"Since so much supply in the seaborne market comes from Australia, these bottlenecks can create another global supply crunch," an Australian producer said. "It is not yet clear if demand will exceed supply, but any big impact on prices could arrive in the next month."