13/06/14 – Coal slump to hit rail freight operators in Australia

From the AFR comes a report that rail freight operator, Asciano, has been approached by coal miner, Anglo Australia, to renegotiate its rail contracts amid a sharp fall in the price of coking coal, which has seen some of its mines run at a loss and unable to temper production due to the fixed costs embedded in such contracts.

Mr John Mullen, chief of Asciano, said that the company has held positive and fruitful discussions with a number of important customers about the take-or-pay contracts, which are proving a millstone around the necks of miners battling dramatically lower coal prices.

Take or pay contracts require a miner to pay for rail capacity even if they don’t use it and makes it difficult for miners to reduce production even as prices falls.

For some miners, the cost associated with take or pay contracts for port and rail capacity makes it more economical to keep a mine running than close it.

As noted earlier, Aussie miners are coming under increasing pressure to slash operating costs amid sharp falls in the price of Australia’s 2 biggest commodity exports, iron ore and coal. This will likely see pressure applied to all parties in the supply chain from mine workers to logistics which alongside the expected sharp falls in mining investment, will adversely impact both employment and incomes across Australia’s mining communities.


Source – MacroBusiness.com