With the release of its "Australian Commodities" report, ABARE believes Australia's mineral and energy export earnings for 2003-04 will decline by 5.5% to A$52.7 billion as a result of the higher Australian dollar compared to the US currency.
Strong world demand for coal is expected to support increases in prices and Australian exports of both thermal and metallurgical coal in 2003-04.
ABARE said factors such as higher shipping prices were likely to continue taking a toll on Australian exporters. Ocean freight rates for coal increased significantly throughout 2003, particularly in the latter stages of the year. By late November 2003 the cost of a capesize charter from Queensland to Rotterdam had doubled since 1 September.
ABARE said the key factors driving the rise in dry bulk ocean freight rates was the rapid growth in demand in China for iron ore imports had been absorbing much of the available shipping capacity, the increase in coal traded compared with last year and coal imports into Europe have risen in response to stronger demand for coal fired power generation. There has also been little incentive prior to this year to build significant new shipping capacity as a result of weak bulk commodity freight rates in the past few years.
“If spot ocean freight rates remain high, however, these prices are likely to flow through into new long term contracts as old contracts expire. The bulk of world ship building capacity is currently devoted to constructing giant container ships and double hulled oil tankers. As a result, there is little prospect of sufficient new capacity coming online in the near future to place downward pressure on coal freight rates,” the report said.
“High freight rates disadvantage exporters that are located further from markets while improving the landed price competitiveness of those nearby. This reflects the significant contribution of transport costs in the total cost of landing coal to consumers.”
Demand for thermal coal in key markets is forecast to expand in 2004, despite the likely continuation of high transport costs. Global thermal coal trade is forecast to reach around 475 million tonnes in 2004, an increase of 10 million tonnes from 2003 forecasts. Especially in Japan, the extended closure of some nuclear power capacity has ensured the demand for coal fired electricity.
On the European front, the continent will source coal from outside the region, as domestic supply declines with the reduction in subsidies provided to the sector. This is particularly the case for Poland where production will drop due to mine closures and industry reform.
Growth in Australian thermal coal exports is forecast to slow in late 2003 and early 2004, reflecting production constraints being enforced by some major operators in the Hunter Valley in response to declines in Australian dollar prices.
ABARE said a strong rebound in global coking coal trade is largely attributed to rising blast furnace steel production in Asia, particularly China. In 2003, world trade in metallurgical coal reached an estimated 197 million tonnes, an increase of nearly 6 per cent from 2002. The forecast is for increases of 7% to almost 211 million tonnes in 2004.
“Demand increases are expected to be more widespread than in 2003, with increased blast furnace production in North America, Europe and North Asia combining with continued strong growth in China,” ABARE said.
The 115 million tonnes increase in exports will be supported by the commencement of production from the Hail Creek, Moorvale and increased output from the extended Tahmoor North underground mine.
