Low Coal Demand to Hurt New Port’s Prospects

Bloomberg reported that firms such as Australia & New Zealand Banking Group Ltd. (ASX:ANZ) and Westpac Banking Corp. (ASX:WBC), both of which have contributed money for the construction of a Queensland-based coal port, risk losses on their loans. That’s because when it starts shipping in 2015, the port will use only about half of its initial annual export capacity as a result of a decline in coal demand.

As quoted in the market news:

‘There will be more capacity than mines available to utilize it,’ Daniel Morgan, a Sydney-based analyst at UBS AG said in a phone interview. ‘It may result in the banking syndicate having to renegotiate the terms or the price, or taking a writedown on their position.’

To secure the funding, Wiggins Island’s coal company owners committed to take-or-pay contracts, which oblige them to still pay for any of their unused export allocation. The junior owners may struggle to meet those contractual obligations after falling coal prices delayed new projects, said Morgan. The owners also had to provide bank guarantees that covered them for a year if they couldn’t make payment.

Click here to read the full Bloomberg report.