Coronado confident coking coal nadir is past
Coronado Global Resources believes it has survived the worst of the coking coal price slump on signs that steel mills around the world are ramping back up and trade flows of coal have adjusted to accommodate China’s ban on Australian coal.
Coronado chief financial officer Gerhard Ziems said he
expected China would persist with the ban, which has seen a lot of Australian
coking coal redirected to smaller but growing markets such as India.
“I was in Canberra last week and I hear that we probably
won’t see a recovery any time soon,” he said of Chinese demand for Australian
coal.
Coronado slumped to a $US226.5 million loss in 2020, ending
a tough year where the company was forced to put mine expansion plans on hold,
seek covenant relief from lenders and conduct an equity raising.
Coking coal prices have recovered from their nadir as
Russian, Mongolian, North American and South African coal has been redirected
to China, allowing Australian coal to flow to the markets that have
historically been supplied by those nations.
“It is an irrational political situation which created a
massive arbitrage in the market, but arbitrages never last long,” said Mr Ziems
of the way coal markets had now adjusted.
Glencore chief executive Ivan Glasenberg said last week that
coal consumers, including those in China, were the biggest losers from the
Chinese ban on Australian coal, because it was increasing the distance and cost
of shipping coal to China.
Mr Ziems echoed those thoughts, saying steel mills in China
were having a tough time.
“I do know all the steel mills in China – they are people
like you and I; they are intelligent people, they are economically driven, the
steel mills want to make profit and, at the moment, they are struggling,” he
said.
“Maintaining a positive dialogue with your biggest trading
partner without sacrificing your values, I think is important and achievable
and I think that is what the government should focus on.”
Coronado is less exposed to the China tensions than many
Australian miners by the fact it is geographically diversified, with mines in
Australia and the United States.
Coking coal prices are famously volatile, but have been
particularly so over the past two months.
The benchmark price for hard coking coal was $US102 at the
start of January, but rallied to reach $US160 per tonne by early February.
A lack of buying during the Lunar New Year holidays over the
past fortnight has seen the price slide back to $US125 per tonne.
Credit rating agency Fitch upgraded its Australian hard
coking coal price forecast for 2021 on Friday from $US130 per tonne to $US135
per tonne and expects prices to average $US140 per tonne longer term.
“We expect coal demand to grow in the medium and long term,
but final decisions on new projects were delayed in 2020. This means that
capacity expansions that were due to take place in 2021-2023 will be delayed
until 2024 or 2025. Supply will therefore remain tight, supporting medium and
long-term price assumptions,” said the ratings agency.
Mr Ziems said he was confident prices would gradually return
to traditional levels.
“Next week China will come back into the market and we will
see a rebalancing of the prices,” he said.
“When you look at the 11-year average for the price, it is
$US170 per tonne.
“In the end, prices gravitate to $US170 per tonne.”
Coronado runs the Curragh coking coal mine in Queensland’s
Bowen Basin and Mr Ziems said plans to expand that mine remain on ice.
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