The Queensland Resources Council’s quarterly State of the sector report for the March quarter revealed that while thermal coal prices are still at least two years away from stabilising – sooner for metallurgical coal – industry is starting to get a grip on costs while being optimistic that the new Labor government is on the right track.

“One of the iron laws of an export industry is that while the world sets our prices, we set our costs,” QRC’s report stated.

“Over more than a year, as the tide of global commodity prices swept out, many in the resources sector struggled initially to wind back costs to keep pace with prices.

“The result was a wave of downsizing, restructuring and contract renegotiation that has dramatically changed the face of the industry.

“In briefing new ministerial teams, one fact never fails to grab attention – at current spot prices, 43% of Queensland’s thermal and 5% of coking coal production is loss-making.

“Fortunately, not all coal is traded on spot markets, and contract prices are less volatile.”

Nonetheless, the report warned that this was a harsh lesson for many in government, that at a time when minerals and energy producers are losing money, key service providers like rail, port, water and power were still earning good returns on the back of “take or pay” contracts.

“This means that mines pay for contracted capacity regardless of whether it is used. In this environment, cash losses would typically need to be greater than the take or pay cost commitments before a mine opted to shut the operation down and incur the full take or pay liability and all other associated costs,” the report stated.

QRC’s report said the supply surplus in most commodity markets was expected to persist over the short term and contribute to sustained softness in commodity prices.

“As global investment slows and unprofitable production is closed, supply growth is projected to slow,” the report stated.

“Despite the forecast decline in export earnings in 2014-15, the outlook for Australian minerals and energy exports remains positive.”

This appears to be more the case with met coal rather than thermal, though the report said that with the large volume of new coal-fired capacity under construction or approved, particularly in non-OECD countries, indicating that coal was likely to remain a primary energy source for electricity generation.

“The relative abundance, low-cost and geographic dispersion of coal resources and the reliability of coal-fired technology will continue to support its use,” the report stated.

“The delayed closure of unprofitable capacity is expected to extend the supply overhang into 2016–2017 and continue to place downward pressure on prices and force uncompetitive operations to close.”

As for met coal, prices were relatively stable last year, unlike other bulk commodities, indicating the market is closer to balance, with a strengthening US dollar and lower fuel prices having reduced costs in major producing regions which has encouraged some price competition and supported a slight drop in prices in early 2015.

QRC said the market balance was expected to tighten from 2016 as increased steel production in China and India and the closure of high-cost production capacity reduces supply availability.

“Metallurgical coal prices are expected to remain subdued until demand growth recovers and further mine closures materialise,” the report stated.

“However, reduced financial pressures may slow the closure of high cost operations. This, in combination with increased price competition, is expected to keep metallurgical coal prices low during 2015.”

Yet there is more pressure looming for industry, with Queensland’s inquiry into “fly-in, fly-out and other long distance commuting work practices in regional Queensland” being chaired by former CFMEU-funded “community advocate” and once-retired but returning MP for Mirani, Jim Pearce.

His Infrastructure, Planning and Natural Resources Committee is scheduled to report to parliament at the end of September.

To ensure this inquiry has “the best evidence to hand”, the QRC is surveying members to update its 2012 survey of workers which ensured that 2300 resident and non-resident workers were given a say in a debate “too often conducted about them rather than with them”, QRC’s State of the Sector report stated.

QRC will make its submission to the committee next month.