Australian supply squeezed at both ends

A myriad of logistics issues and supply and demand factors are hampering the flow of metallurgical coal supply from Australia, according to IHS Markit proprietary data.

In Queensland, a push by producers to make up tonnes lost as a result of Cyclone Debbie in late March is understood to have caused a real strain on the supply chain and is the main catalyst behind the heavy congestion and long delay times currently impacting terminals.

The multi-user Dalrymple Bay Coal Terminal (DBCT), Queensland's largest terminal by both capacity and volumes shipped, has borne the brunt of congestion, with vessel queues and waiting times unable to recover to normal levels since the cyclone struck.

IHS Markit MINT software, a commodity-movement tracking tool, showed 38 vessels at anchor within DBCT anchorage area this morning, significantly above usual averages of 15-20 which sources say is the terminals optimum operating queue.

To make matters worse, a planned 30-day shutdown of the entire berth two inloading and outloading system will take place between 8 November and 5 December.

This means there is a high likelihood there will be a sizeable ship queue leading into December, which is traditionally the highest demand month of the year.

Market sources say everyone who ships out of DBCT is now in the same boat, and it will only come down to how well you have pre-planned.

But it will take some amount of pre-planning to get around the current delay time on vessel loading at the terminals - perhaps sellers taking a haircut on demurrage and sending ships earlier than typically required.

The average wait on cargoes at DBCT is around 20 days. However, this varies considerably by coal product. The expected delay on coal from Anglo American's German Creek and Moranbah North mine around 27 and 26 days respectively.

Delays on Foxleigh cargoes are around 26 days, mainly as a result of dual loading with Anglo American cargoes, while delays on Glencore's Oaky Creek material rae understood to be approximately 18 days.

Multiple sources have told IHS Markit that Anglo has been overselling their production and rail allocation, thus contributing to the higher vessel queues and extended waits. However, other sources also say Anglo notified logistics service providers in advance of increasing production at their operations.

Nonetheless, other producers are being caught up in the delays.

Vessels awaiting cargoes from Peabody's Millennium and Goonyella North and AMCI's Carborough Downs are expected to wait around two weeks while times on loads from Rio Tinto's Hail Creek are around 18 days - though that mine was not without its production issues this year.

Meanwhile, in New South Wales, coal exports out of the Port of Newcastle dropped well below average again in the latest week ending 5 November, with historical analysis showing around 3 mt has been routed from Newcastle shipments over the last two months.

Combined throughput out of Port Waratah Coal Services (PWCS) and Newcastle Coal Infrastructure Group (NCIG) terminals reached 2.25 mt last week, down 11% week on week from 2.52 mt and well below the 2016 weekly average of 3.09 mt.

Over January-October this year, combined shipments from Newcastle terminals fell 2% to 131.22 mt from 133.31 mt.

However, all of this decline occurred over September-October, with terminal data showing shipments over January-August increased by 0.61 mt year on year.

Over the last 12-weeks, 36.48 mt of coal was shipped from Newcastle, however, if the terminals had maintained average weekly shipments then throughput would have reached upwards or above 40.22 mt.

During the period Newcastle shipments have been impacted by planned and unplanned rail network closures, heavy swells affecting berthing and two-rounds of industrial action by train drivers of major New South Wales coal hauler Pacific National.

Given the continuing low throughputs, market views are mixed as to whether the ongoing industrial action at Glencore's Hunter Valley mines is also having an impact on volumes.

Market sources say the strikes have impacted production at the affected mines. However, Glencore has been using more contract workers to minimise the impact.

Local logistics sources say they have not been notified of any production issues, instead pointing to low vessel demand as a contributing factor.

"There are simply not many ships showing up, people were aware strikes were imminent, perhaps they diverted or brought forward cargoes," a source said.

One market source confirmed his customers did request bringing forward cargoes in the lead up to the Pacific National driver strikes, in anticipation of terminal congestion.

Eric Thorpe is a Senior Research Analyst at IHS Markit.
Posted 7 Nov 2017

This story was originally published 6^th of November in the 'Inside Coal' publication which makes up part of the Metallurgical Coal Market Insight, News and Analysis capability.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.