Wet weather, engineering problems and port congestion in Australia are helping to prop up the price of coking coal.
The commodity, which is used in steel-making, is currently trading above $220 a tonne, surprising many analysts who expected much lower prices.
Overnight BHP Billiton, the world’s biggest coking coal exporter, and Whitehaven Coal both cut production forecasts.
BHP said it expected to ship between 41m and 43m tonnes of coking coal in the year to June, against earlier guidance of 44m to 46m tonnes. It blamed “challenging roof conditions” at its Broadmeadow underground mine in Queensland and a “geotechnical” event at its Blackwater operation caused by wet weather for the downgrade.
“As a result of the reduced Broadmeadow and Blackwater volumes and compensatory increased production from higher cost pits, unit cost guidance is also expected to be negatively impacted and is currently under review,” BHP said in an update.
Its revised guidance came came as Sydney-based Whitehaven Coal lowered its full year coal forecast to between 20.5m and 21m tonnes, from 22m to 23m tonnes. It also blamed “roof conditions at its Narrabri mine in New South Wales.
Earlier in the week, South32, the miner spun out of BHP, reported a 43 per cent drop in coking coal output to 788,000 tonnes in the three months to December due to problems at its Appin mine. It was forced to close the mine last year because of concerns over high gas levels. Production resumed in August but has been running at lower levels.
On top of the production shortfalls, analysts reckon coking coal has also benefited from port problems, which can be traced back to the cyclone that lashed the eastern Australia in April.
“Port congestion at major coking coal export terminals in Queensland has been an issue over the past few months as many terminals in the region have been operating above capacity to offset the supply disruption caused by Cyclone Debbie in early 2017,” said analysts at Jefferies in a report.
“Planned maintenance at the Port of Hay Point for the Hay Point Coal Terminal and the Dalrymple Bay Coal Terminal, which started in October, limited throughput from the port and resulted in queues of more than 70 vessels waiting to load coal at the terminals just before Christmas. To put that in perspective, daily average queues at the terminal had not been greater than 40 vessels since 2010.”
With the port congestion slowly easing, Jefferies reckons prices will come, which were at $260 a tonne earlier this week, will struggle to hold at current levels.