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Coal Surplus Continues to Rise as Australian Miners Continue to Export
Apr. 23, 2014 11:33AM PST
Industrial Metals Investing
Bloomberg reported that Australian mining companies are producing and exporting coal at a loss due to take-or-pay contracts with freight companies.Losses from exporting coal at current low prices are much less than what it would cost to default on the freight agreements.
Bloomberg reported that Australian mining companies are producing and exporting coal at a loss due to take-or-pay contracts with freight companies. Losses from exporting coal at current low prices are much less than what it would cost to default on the freight agreements.
According to Bloomberg, shares of Rio Tinto (NYSE:RIO,ASX:RIO) dropped 01. percent to A462.79 in Sydney today, while metallurgical coal exporter BHP Billiton (NYSE:BHP, ASX:BHP) gained 0.5 percent to trade at A$38.20.
As quoted in the publication:
The long-term freight contracts were spurred by the need to ensure volumes for infrastructure investments that can last a quarter century, according to Aurizon Holdings Ltd. (AZJ), Australia’s largest hauler of coal. The agreements helped attract funding, the Brisbane-based company wrote in an e-mail April 15. The take-or-pay agreements are hindering unprofitable mines from cutting output, Goldman Sachs analysts said in a March 30 report. Long-term supply contracts are also shielding some mines from the slump in spot prices, the analysts said.