November 4, 2013
More bad news for King Coal and it reinforces the view that the boom in coal is over.
BHP Billiton has scrapped plans to build a major new coal port at terminal two at the Abbot Point port, near the Queensland town of Bowen. It has also scrapped plans for an accompanying rail line that would have taken coal from mines to be exported.
The reasons include the excess of port capacity along the Queensland coast (the ports are operating 65% of capacity, 20% lower than the long-term industry average); the fall in the international coal price dropping 22% since 2010 due to lower demand; and the expensive nature of Queensland’s proposed projects, which require a coal price of $120 a tonne to be viable. The current price is about $77, with the World Bank forecasting a $70-a-tonne average until 2020.
The boom is turning to a bust, given China’s goal to limit coal consumption seriously. The surplus ports may become stranded assets if mines become financially unviable. In an industry-wide downturn, there is a risk port users will walk away from contracts or fail to renew them, with other users unlikely to pick up the surplus capacity.
This news is marked contrast to Queensland's Newman Government's coal rush mentality. Economic growth for them is resource development that basically disregards the environmental consequences, whilst their understanding of Australia's future is that our economic fortune must inevitably be driven by the fluctuating demand for minerals and energy. It's one of Quarry Australia, whose dependence on coal exports makes Queensland particularly vulnerable.
The economic reality is that Queensland is beginning to find that it may well be left with some large holes in the ground and idle ports and railways.