Coal Delays at Dalrymple Lead to a Longer BoomThere’s nothing...

Coal Delays at Dalrymple Lead to a Longer Boom

There’s nothing better than baring your icy feet to the warm jet of a fan-powered heater. So we were delighted when our boss walked in this morning with a spare fan-powered heater. She asked if anyone had cold feet. Our hand shot up. Our legs shot out. Our shoes flew off. Fate took its course.

Apart from our new found foot-warmth, something else is giving us a warm glow today. The coal boom isn’t over yet. You haven’t missed it. That’s reason to celebrate. A Lleyton Hewitt-style show of fist-pumping bravado might be in order.

Coal prices might be staying higher longer than anyone expected.

Dalrymple Bay terminal is one of the largest coal ports in the world. It can ship 65 million tonnes of coal in a year. That isn’t enough to feed all of China’s coal power plants. But it makes Dalrymple a focal point for Queensland’s coal production.



Babcock and Brown, infrastructure owner and not much else these days, owns the port. It heralded an ambitious expansion at Dalrymple last year. By December, total capacity would be 85 million tonnes.

Funny thing, ambition…

It won’t happen. That’s not Babcock and Brown’s fault. Rains came. Builders languished. The new expansion will be finished in March at best.

That means supply of coal to China will be a few million tonnes shorter than investors expected. That may not sound like much. China’s imported 51 million tonnes of coal last year. Who gives a hoot about an extra 3 million?

We do. We give many hoots. We’ve got a truckload of hoot coming your way. We’ll explain why in a minute.

First, a key point. We were surprised to find that Newcastle, Australia’s other big coal port, just announced an 18% fall in shipments. You’d think coal producers would be swarming the place while Dalrymple’s full.

There’s nothing wrong with Newcastle. But the same rains that hit the port in Queensland delayed the miners themselves. They simply don’t have the coal to ship.

The grand new coal expansion is certainly having a few teething problems.

Now…the important part.

This is a marginal situation. Marginal situations are a type of investment idea that often escapes the average person’s attention. They don’t look particularly enthralling on the surface. But everything happens at the margin.

A premium example is Saudi Arabia’s oil production. The world uses 86 million barrels of oil per day. Saudi Arabia produces around 9 million. It’s special because it has the ability, although limited, to add new production. Most other countries are running at full capacity.

The world oil market is stretched tight, like a fitted bedsheet on an expanding air-bed. But the bed is growing as more Asians buy cars. Saudi Arabia may be the only corner of the sheet left with any give.

But here’s the thing… it doesn’t need to add millions of barrels of new oil to have a significant affect. It announced an extra 350,000 barrels yesterday. That’s only 0.4% of world oil demand. Tiny. Miniscule. Marginal.

Well, the oil price fell US$3. More on that below.

You see, it doesn’t take a lot to move a tight market. So if China misses out of 3 million tonnes from Dalrymple Bay when it wants 50 million overall…that’s quite a lot.

Website Globalcoal keeps indexed prices of coal. It also keeps track of the prices at major ports like Newcastle. They’ve all had big movements in the last couple of weeks. One index shifted 14%.

The short story is that coal prices may just keep rising. It’s not too late to invest here. It’s still a hot asset. And there just isn’t enough of it. That’s the kind of asset you want to hold.