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WoodMac cuts Australia's met coal 2018 export forecast on Aurizon dispute

Singapore — The outlook for Australian metallurgical coal export volumes for the yearhas weakened and price forecasts for the product have risen as quickresolution to the dispute between the Queensland Competition Authority and thestate's coal industry with rail operator Aurizon seems unlikely, miningconsultancy Wood Mackenzie said in a report Monday.

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It cut its Australian coking coal export forecast to 180 million mt for2018 from 182 million mt last month and around 188 million mt at the end oflast year.

Australia's metallurgical coal exports in April were hampered by acombination of port and rail maintenance issues. Excluding last year'scyclone-ravaged figures, this means the country's exports for June are thelowest since April 2013 and leaves the annualized rate for the first four months of the year at 172 million mt, Woodmac said.

"It is a poor start, but not untypical given Queensland's wet season.2018 performance so far sits close to 2015 figures, when Australia ended upexporting around 182 million mt," it said.

Under normal circumstances, confidence in meeting the 2015 level would behigh, but the impact of rail maintenance had raised the risk of exportsfalling short, it said.

The impasse currently enveloping Queensland's coal logistics remainsunresolved and while QCA is working toward a final decision on the matter, itwas a slow process which is unlikely to be completed before September thisyear, Wood Mackenzie said.

"From the outside, the relationship between the QCA and Aurizon lookstense at best," it said, adding that its request for submissions, made on May30, did at least see "some mild support for Aurizon's previous requestsregarding director maintenance costs, which suggest that concessions may bemade in the final decision."

There was a heightened risk that Australia's traditional export surge atthe end of the fiscal year in June will collide with Aurizon's dispute withthe QCA, the report said.

Suppliers could see port delays grow and seaborne prices rise.

"This process has already began with the $5/mt jump in HCC prices on thelast day of May. Further rises are likely, possibly moving above $200/mttowards Chinese equivalent prices, as buyers look to secure July deliveriesduring a period of constrained supply," it said.

Higher production in China in early 2018, which was partly the result ofprivate mines operating above capacity, could come under pressure as therewere some minor accidents in late May, which will likely lead to increasedsafety checks, the report said.

"China's coal mine safety administration has announced inspections toensure approved mine capacities are not exceeded, with fines and productionstoppages likely. This action will keep prices supported, and may limitproduction growth through the rest of the year," it said.

Wood Mackenzie forecast that premium seaborne low calorific hard cokingcoal prices would fall to $168/mt by the end of the year, up from its previousforecast of around $160/mt.

Platts assessed Premium Low Vol FOB Australia at $198/mt FOB AustraliaMonday.

PCI and semi soft coking coal prices will continue to benefit from thestrength in the hard coking coal sector, it said. "The wide price differentials between SSCC and premium HCCs shouldencourage their greater use, and higher margins on thermal sales should seesome semi-soft diverted to that market. However, the preference for premiumcoking coals seems to be limiting upside for semi-softs, and as such, we havenot increased their 2018 prices to the same extent as PCI," it said.

Woodmac has revised its Australia LV HCC forecast upward to an average of$171/mt for next year.

--Nathan Richardson, newsdesk@spglobal.com

--Edited by E Shailaja Nair, shailaja.nair@spglobal.com