Hard times ahead for Hunter Valley coal

Mining companies in the Hunter Valley are bracing for a chilly winter, with analysts predicting coal prices will fall below the $77 per tonne mark.

With billions in capital investment poured into the industry over the past five years, production will continue to grow despite falling prices, precluding solutions like production slowdown or mine closures.

Bank of America Merrill Lynch analysts said to expect more thermal coal price cuts this year, as prices have halved since 2011 and are down almost 70 per cent on peaks reached in 2008.

"As global output is now set to expand, we believe the supply overhang will persist and revise our forecast for Newcastle coal lower to $$81.30 a tonne as an average for 2014, down from $$90.10 a tonne previously," Merrill Lynch said last week.

Chinese buyers apparently defaulted on at least three cargoes of Newcastle coal earlier in the year, as a bargaining chip to secure a lower price in a falling market. 

Rio Tinto energy division chief Harry Kenyon-Slaney blamed the high Australian dollar, high taxes, delayed mine approvals and community opposition to mining for damaging the Australian coal industry’s competitive advantage.

Last week Kenyon Slaney said Rio had cut nearly 25 per cent from production in the last year, but increased output by 10 per cent.

‘‘This is a truly significant step-change in the competitiveness of our business and we’re not done yet,’’ Mr Kenyon-Slaney said.

‘‘With the exception of the health and safety of our people, nothing is off limits.’’

Mr Kenyon-Slaney agreed Rio has ‘‘an obligation to take real action on climate change’’ but also said electricity was the key to lifting people out of poverty, and coal would remain a major energy source.

Coal mines in NSW employed 21,953 workers last September, down from a peak of nearly 25,000 in June 2012.

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