Whitehaven backs strength of coal market as output surges

Whitehaven Coal is confident of a positive outlook for the company in the global coal market.

The Sydney-based company, in its September quarter update, reported a 14 per cent rise in coal production against the same period of 2016 to 5.88 million tonnes.

Whitehaven benefitted from strong demand in Asia and better-than-expected coal prices during the quarter, with its equity coal sales rising by 23 per cent to 4.7 million tonnes.

The company, which owns majority shares in the Maules Creek and Narrabri mines, achieved an average sales price of $US91 a tonne for its thermal coal during the quarter.

Whitehaven said thermal coal prices were stronger than many analyst forecasts during the three-month period, adding that current spot and forward prices also remained well above estimates.

Several factors have combined to keep the thermal coal market tight, according to the coal miner.

“The higher quality end of the thermal coal market is experiencing stronger demand as a number of key seaborne end users are changing their quality requirements due to a greater focus on environmental and generation efficiency,” Whitehaven said.

“Whilst in China, the coal burn for electricity generation is up 8 per cent year-on-year, due to hydro electricity supply constraints and strength of underlying electricity demand. These factors have led to a larger than expected draw on the seaborne market.”

The company said industrial activity and weather impacts earlier in the year have limited exports in Australia. Indonesia, another major producer of thermal coal, was also impacted by poor weather, constraining exports, Whitehaven continued.

“With the two largest seaborne thermal coal exporters unable to respond to the strong demand, coal prices have risen across the board. This background underpins a positive outlook for thermal coal demand and prices over the next year,” the company explained.

Meanwhile, hard coking coal prices have also traded above expectations in recent months. Whitehaven said this situation could change in the short term if steel production in China is cut, as has been suggested.

“The flow on is likely to be less draw on the seaborne market and moderating prices for metallurgical coals over the next six to 12 months,” the company said.

“The relative strength in the thermal coal prices has seen a continuation of the poor pricing relativity between semi-soft coking coal (SSCC) and thermal coal which has limited the incentive for producers, including Whitehaven, to switch to incremental volumes into SSCC.”

Whitehaven achieved an average price of $US109 a tonne for its metallurgical coal products during the September quarter.