Australias Newcastle cuts coal shipping quotas

Australia’s Newcastle port, the world’s largest coal export terminal, has cut allocations for all producers for 2007 in a bid to ease severe ship congestion, potentially driving coal prices higher in a tight Asian market.

Port Waratah Coal Services (PWCS), operator of Newcastle port, said in a statement on Wednesday that with the reinstatement of the capacity-balancing system, “all producers received a reduced allocation for 2007 compared to what they originally requested”.

Industry sources said the port operator has told all producers, including the world’s largest thermal coal producer, Xstrata Plc. , and global mining giant Rio Tinto Ltd./Plc. , to cut shipping output by between 18 and 20 percent this year.

“It won’t be just Coal & Allied that has been hit. Others like Xstrata and Centennial Coal will also need to cut their output,” said a source from a major Australian producer.

Coal producer Coal & Allied Industries Ltd. said earlier on Wednesday it will cut production at its three Hunter Valley mine sites in Australia by about 20 percent this year due to a squeeze on rail and port allocations [ID:nSYD180538].

Coal & Allied, 75 percent-owned by Rio Tinto, mined about 29 million tonnes of thermal and semi-soft coking coal in 2006.
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Australia’s coal export infrastructure has been stretched to capacity in recent years due to under-investment in railways and ports and strong global demand.

Plagued by long ship queues and waiting times, Newcastle reinstated a queue-management system in March.

The system, which aims to match vessel arrivals to the port capacity to avoid excessive ship backlogs, allocates export tonnages to all coal producers on a pro-rata basis.

PWCS has said that allocation system would cut vessel queues to a “more acceptable level” during the second quarter of 2007.

Following the completion of the expansion programme in March, Newcastle now has a capacity of 102 million tonnes per annum (mtpa), compared with 89 mtpa last year.

PRICES POISED TO RISE

Industry sources said the cuts in shipping allocations would slash Australian coal supplies and drive up thermal coal prices, which have climbed to $55 a tonne from an average of $30 a tonne in 2005, based on trading platform globalCOAL’s free-on-board prices loaded at Newcastle.

“The market is already very tight on bituminous coal, so any further reduction in supply will not only drive up prices for Australian coal, but also for Indonesian coal,” another source said.

The congestion at Newcastle port has turned buyers away from Australia to seek Indonesian supplies instead, prompting FOB prices loaded at Kalimantan to rise to $57-$60 a tonne for globalCOAL’s Newcastle equivalent specifications, presenting a $4-$7 premium to Australia’s coal prices.

Rising coal prices are driving up costs and hurting profits for utilities such as Japan’s Tokyo Electric Power Co. and Korea Electric Power Corp. .

Coal & Allied has warned that Australia’s reputation as a reliable energy supplier could be tarnished if infrastructure issues were not addressed.

The company said at its annual general meeting last month that infrastructure constraints were preventing producers from fully capitalising on demand, with at least an additional 15 percent of production capacity not being realised.

Australia, the world’s second-largest thermal coal exporter after Indonesia, exported 79.8 million tonnes of thermal coal in 2006.

Information from: asia.news.yahoo.com