BY: RHIANNON HOYLE From: The Wall Street Journal June 05, 2012 12:02PM
AUSTRALIAN thermal coal production is just too expensive. That is the sobering message from Commonwealth Bank of Australia (CBA) in its latest warning for the industry that's vital for the Pacific nation's economic health.
Having risen at an average nominal rate of 25 per cent a year since 2007, the capital required per tonne of output for Australian thermal coal projects is now well above that of all other major producers of the commodity, and may hold back some new projects, CBA analysts Lachlan Shaw and Vivek Dhar caution in their latest research note.
CBA cited Australia’s median “capital intensity” in real terms at $US141 a tonne, compared with South Africa’s $US99 a ton and Indonesia’s $US56 a tonne. Australia is the world’s second-largest exporter of thermal coal, behind Indonesia.
“New Australian projects are less attractive than projects in almost any other jurisdiction - (a finding that is) sympathetic to recent delays in several high profile new Australian thermal coal backed developments,” the research note says.
Companies have been shutting Australian coal mines and questioning whether they should continue with billions of dollars of investments - squeezed by cooling prices, higher wages and a strong Australian dollar.
Switzerland-based Xstrata shut three Australian mines last year because costs rose too high as reserves became depleted.
Coal is vital to Australia’s economy. The government forecasts total coal exports - including thermal coal and metallurgical coal, a key ingredient in steel-making - will reach 310 million tonnes, valued at $49 billion, in the fiscal year through June.
The high cost of developing projects here “would mean that higher coal prices are likely to be required to bring new Australian projects online relative to non-Australian projects,” the bank’s analysts say.
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