x Abu Dhabi, UAEFriday 21 July 2017

All is not well in the world of coking coal

What's Down: Less than half of the $23bn of planned coking coal mines globally would generate acceptable profits at current prices, pointing to project delays, Wood Mackenzie predicts.

Less than half of US$23 billion of planned coking coal mines globally would generate acceptable profits at current prices, pointing to project delays, the forecaster Wood Mackenzie predicts.

Coking coal, used to make steel, has declined 26 per cent since the start of the year as demand growth has slowed. Companies including BHP Billiton and Rio Tinto face weaker commodity prices and rising costs, said Ben Willacy, a metals and mining analyst at Wood Mackenzie.

At current prices, 36 per cent of planned coking coal supply would meet a minimum 15 per cent rate of return, Mr Willacy said. Wood Mackenzie analysed 28 potential new coking coal mines, costing an estimated $23bn to build, with a combined capacity of 106 million tonnes annually.

"Many metallurgical coal projects would clearly fail to achieve reasonable returns at current prices," he said. "This highlights the risk of near-term project delays."

Rio Tinto this year pulled out of talks for an A$9bn coal port in Queensland, citing higher costs and low prices.

Coking coal contrasts with new iron ore mines where about 76 per cent of new developments offer acceptable returns at current prices, Mr Willacy said. Wood Mackenzie analysed 22 iron ore projects, estimated to cost US$78bn, with planned capacity of 530 million tonnes. Iron ore rebounded 42 per cent from a three-year low in September.

"The majority of iron ore projects in our analysis are viable at current prices, and operators will be incentivised to build new capacity," Mr Willacy said.

"We forecast a declining real iron ore price over the next decade, as increased supply from existing operations and new projects enters the market."

Projects in the analysis were new mines scheduled to go ahead over the next five to six years, Mr Willacy said.