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Coal Production Increases On Weaker Australian Dollar

By  +Follow August 23, 2013 10:21AM
Tickers Mentioned:

The recent weakness of the Australian dollar is causing an uptick in coal production in the country that appears likely lead to a further increase in surplus, which for 2012 were already tallying at some 20 million tons.

The discovery of massive shale reserves in the US has led to a boom in oil and natural gas production, which has in turn taken a toll on domestic usage of coal as an energy supply. The story is different in rapidly developing countries, however, and Australian producers have been taking advantage of the struggling currency in order to increase output while overhead expenses are low. Indeed, coal shipments from the country are up over 13 percent on a year-over-year basis. According to the financial services firm Macquarie Group Ltd, the 17.6 million tons the country exported in June was a monthly record.

Higher exports have not come without consequences however. Australia’s Newcastle export terminals in New South Wales saw prices drop 10 percent in the same month to $77.75 per ton. Coal prices in Newcastle were down nearly 20 percent overall last year, and July’s average of $76.63 per ton was the lowest since fall of 2009.

Analysts have responded to this situation by reducing forecasts, as Goldman Sachs (GS) and Citigroup (C) both agree that coal prices in 2013 will be lower by around 7 percent. And the industry itself seems to be fully aware of the situation. Yancoal Australia Ltd., a Chinese-run operation, announced in its recently-released mid-year production results that the relatively stable demand that has persisted is being overtaken by growing surplus, as mining companies take advantage of currency conditions to produce more for less before having to contend with inevitable cost cutting measures.

The Australian Coal Association has recently noted that the strength of the Australian dollar in recent years accounts for some 30 percent on higher prices, and says that the industry is 11,000 jobs poorer as a result.

For the time being, however, demand is expected to stay strong enough to support a 7 percent projected increase to 183 million tons exported by the end of the year. Indonesia, the only country that exports more coal than Australia, could see exports up as much as 6 percent. For the time being, the difficult decision to cut output can and will continue to be postponed.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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31 Oct 14 01:57:19
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31 Oct 14 01:47:23
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31 Oct 14 01:43:42
RT @KevinBCook: $ES_F Yest $GS cut $SPX 2015 EPS to $122 but said 100bp move in GDP =$6. We just got 50bp better surprise for Q3. More surp…
31 Oct 14 01:35:59
RT @GoldmanSachs: $GS proud to win @NovogradacCPAs community dev awards for 2 projects cc @Liifund #NOLA - more: http://t.co/YiDyTBRbOo htt…
31 Oct 14 01:35:23
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31 Oct 14 00:36:13
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Stock Relay
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31 Oct 14 00:16:56
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31 Oct 14 00:00:44
RT @GoldmanSachs: $GS proud to win @NovogradacCPAs community dev awards for 2 projects cc @Liifund #NOLA - more: http://t.co/YiDyTBRbOo htt…
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30 Oct 14 23:46:34
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30 Oct 14 19:55:03
RT @RudyHavenstein: "...if these institutions are really that unlucky, then perhaps they shouldn't be in the business of minding other peo…
30 Oct 14 19:39:54
@nanexllc I will be shorting $GS in overseas markets in anticipation of the bankruptcy filing Friday. Oh the humanity....
30 Oct 14 18:27:56
RT @TweetLeni: Still long $GS and $JPM
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Stock Relay
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30 Oct 14 16:51:59
MA10-MA50 Bull Crossover Stocks (Oct. 30): $AN, $APOL, $AXL, $BBBY, $GS, $MWV http://t.co/tQ65wn55mZ
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30 Oct 14 16:50:32
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30 Oct 14 16:25:03
RT @KevinBCook: $ES_F Yest $GS cut $SPX 2015 EPS to $122 but said 100bp move in GDP =$6. We just got 50bp better surprise for Q3. More surp…
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30 Oct 14 14:52:00
Sold $AAPL long position yesterday at $107.10. Hoping to get back in under $105. Initiated new long position in $GS late afternoon today.
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30 Oct 14 14:50:36
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By  +Follow August 23, 2013 10:21AM



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