Adani’s vain hope global coal market will save Carmichael mine

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Adani pins hopes for beleaguered Carmichael coal mine on the Asia–Pacific market. But the Australian government’s own resources forecaster is less confident.

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Adani recently flagged that it is pinning its hopes for its beleaguered Carmichael thermal coal mine in Australia on growth in the Asia-Pacific market, even though the Australian government’s own resources forecaster is now painting a gloomy picture for coal exporters.

Recently the Indian-owned Adani Mining told the Guardian that the seaborne thermal coal demand had grown by 4.9 per cent over the last decade and optimistically proclaimed that “continued growth is forecast” which “will create opportunities for the Australian coal industry.”

The latest data from the Australian Government’s Department of Industry, Innovation and Science (DIIS) suggests Adani is dreaming.

It is worth noting that DIIS’s coal forecasts have long been upbeat about the future of Australian coal exports and were slow to recognise the profound implications of public revulsion in China, India and other Asian countries at air pollution.

While all estimates of future demand need to be treated with caution, it is worth noting that DIIS has also been slow to recognise the renewable energy revolution transforming the power generation industry.

DIIS data certainly show the dramatic growth in the seaborne thermal coal trade over the last decade.

However, over the next six years to 2023 DIIS sees a decline in the seaborne thermal coal market with a fall of 20 million tonnes by 2022 followed by an increase of 7 million tonnes in 2023.

If India cuts coal imports, what’s left for Adani?

Adani has proclaimed “there has been no change to our marketing strategy. India will remain the key market for Carmichael coal.”

However, DIIS is far less optimistic in its estimates of future Indian demand for thermal coal. Instead it estimates India’s thermal coal demand will gradually decline from the 152 million tonnes imported in 2017 to 140 million tonnes in 2023, a 1.3% annual decline.

The implications for Adani are even more pronounced, given the closure of the its 4600 megawatt Mundra power plant since February 2018 as unviable at current import coal prices.

Adani also told the Guardianthat “we are also targeting growth in demand for seaborne thermal coal from south-east Asia and continued strong demand from north Asia.”

While Asia remains one of the few potential growth centres for thermal coal globally, even here DIIS’s estimate of future demand is rather muted.

Instead of the “continued growth” Adani sees, DIIS estimates that total Asian thermal coal imports will gradually fall from 760 to 740 million tonnes a year between 2017 and 2023.

Even if Adani does proceed with its Carmichael mine, DIIS estimates the spot price of seaborne thermal coal (in real terms) will fall from US$97 a tonne in 2019 to US$71 tonne in 2023.

This estimated 27 per cent fall in market prices by 2023 is one of the reasons why Adani has found it impossible to find banks willing to stump up billions for its big-budget mine, railway and port project.

It is also worth noting DIIS’s estimate of the future spot price for thermal coal is based on the benchmark Newcastle 6,000 kcal coal. Adani’s Carmichael coal is a far lower quality product ranked at 4950 kcal and with 25–30 per cent ash content.

In the global market, high-ash, low-calorific-value coals sell at a discount to their higher quality counterparts, and rising pressures to deal with air pollution will only widen this discount gap over time.

All up, DIIS’s view of the global seaborne thermal coal market is far less rosy than Adani’s.

In short, DIIS estimates that over the 2018 to 2023 period the global seaborne thermal coal market will decline, demand will fall in both India and Asia and coal prices will decline in real terms.

In a declining market, competition for market share will be fierce given the high upfront capital cost and stranded asset nature of purpose built, long life rail and port infrastructure.

Existing global suppliers in countries such as Indonesia, Russia, South Africa, Canada and Colombia will all be looking to utilise existing mine and port infrastructure.

In Australia, the major producers in the NSW Hunter Valley will also remain major players in the regional market.

Adani has variously touted the Carmichael coal project as producing between 25 million and 60 million tonnes a year for export, a huge volume for a declining market to absorb.

As Adani’s coal would be low-quality coal and be produced at a high cost to cover the huge infrastructure costs, the project wouldn’t stand a chance in the global market.

Without a realistic business case for 25–60 million tonnes a year of low-grade coal, it is no surprise that Adani have yet any financial institutions or equity partners willing to be publicly associated with the project.

Bob Burton is the Editor of CoalWire, a weekly bulletin on global coal industry developments published by CoalSwarm. (You can sign up for it here.) Bob’s Twitter feed is @BobBurtonoz.

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15 Comments
  1. George Darroch 4 months ago

    It only made sense for Adani when they could make other people pay all their infrastructure costs.

    Now that everyone has more or less walked away (I don’t think even the Federal Government will punt billions on this now) and coal is on the decline, it’s dead.

    • john 4 months ago

      No bank will finance it because it does not stack up as a viable business proposition. See below my figures which are optimistic on the cost side.

    • Joe 4 months ago

      While ever Matteo COALavan has his fingers on The NAIF tiller never discount the LNP tipping our hard earned into the…. Adani abyss. I did see that The NAIF has just ‘sunk’ some $30 millions of our hard earned into the Humpty Doo Barramundi Farm in Darwin. I didn’t see much of Matteo trumpeting this NAIF funder.

  2. john 4 months ago

    From my old memory bank i seem to remember the figure for Carmichael Coal was about 5600 where as Newcastle Coal is about 7000. { calorific value }
    So if thermal coal is selling at $100 for Newcastle Coal then Carmichael Coal is worth
    $80 per tonne.

    That is where the calorific value comes from. hmm the 5600 against the 7000.

    At even best figures the cost to mine, transport, load, ship are $10, $30, $2.50, $70 total $112.5
    Current price of Thermal Coal is below that figure.

    Anyone what to buy this fantastic venture?
    For Carmichael to break even the price of Thermal Coal has to be above $145 per tonne all the time.
    Reason $145 selling price Carmichael price 56/70 = $116
    So the proposal is a total dud.

    • Chris Drongers 4 months ago

      Very interesting post.

      I think cost of low value coal per GJ increases more rapidly as calorific value drops due to proportionate increases in the volumes to be dug/handled/transported/disposed of.

      • john 4 months ago

        Thank you Chris as i know you are a Pearson who has some understanding.
        This company i would not put my money in.

  3. John Saint-Smith 4 months ago

    It’s worth remembering that the main factor stopping the Adani mine from beginning infrastructure construction is Adani himself. If he really believed he could make this happen, he would be moving Heaven and Earth to bring it on. What he’s really doing is trying to dodge his creditors.

    Things are not looking to good for the future of this mine. and more importantly, the rail link, because all the other mining proposals for the Galilee Basin depend on this critical piece of infrastructure being built by Adani.
    https://www.australianmining.com.au/news/aecom-withdraws-adani-rail-link-project-carmichael-mine/

    I’m wondering if the gloomy coal export prospects cited here actually take full account of the constant downward movement in the price of solar, wind, storage, energy saving efficiencies and the prospect of growing anger among the people, in India, China, and the rest of S.E. Asia about the threats to water supply, health and climate, of fossil fuel pollution?

    It seems extremely unlikely that these people would prefer to die for coal – unlike our own coal-eating coalition politicians

    • john 4 months ago

      Old mate.
      it does not meet financials
      Cost to sell about $140
      Buying price about $110
      Do you see the difference?

    • Tony Wilson 4 months ago

      This is the key point. Adani are doing everything possible to keep the project (a) alive, and (b) in a coma. Adani’s balance sheet is in terrible shape. The only thing keeping the company technically solvent is the “value” of their major assets, in particular, the Carmichael project.

      They can’t afford to build it, no-one is fool enough to lend them anything for it, they have no hope of making a profit from it, but they cannot afford on any account to write it off because the instant that they do, it’s no longer worth the billions their accounts value it at and they are instantly bankrupt, with debts greater than the sum of their assets.

  4. Radbug 4 months ago

    A black letter peace treaty in Singapore, on June 12 (hopefully, will it happen, won’t it happen?) will see Gazprom run a pipeline south into the ROK at light speed and gobble up 10% of Australia’s thermal coal exports & 40% of Australia’s LNG exports.

    • John Saint-Smith 4 months ago

      Can you offer any citation for this?

  5. john 4 months ago

    I will post again.
    Adaini needs about $140 per tonne to break even.
    Presently the income for the product they may produce is worth about $78 a tonne.
    This is why no bank will finance this proposition.
    No need to do any protesting about this as it does not stack up on a financial basic.

  6. Eric 4 months ago

    That is the end of new coal development in Oz. Hip Hip Hooray!!!! 🙂

  7. RobertO 4 months ago

    Hi All, Remember that every company puts its spin on their announcement. The important part for Adaini is that if Australia can build the railway line for them (our RWNJ’s must have coal or Northern Infrastructure Fund or somehow) Adaini can then take $2.00 of every ton on the railway line including and other mines off to the Cayman Islands. Adaini is not really concerned about making a loss (shareholder take that pain) so long as they get the $2.00 to the Caymans long after it’s (Adaini) mine has ceased to operate.
    It’s not about a company breaking even or making an actual profit (if shareholders can take the loss) but about making a private profit in the Caymans off other campanies that use the Railway line (look at the shipping Port that has increased it”s debt to the tune of $340 million in 4 years and debt was used to finance the port. Adaini family will not lose any personal money when the port folds.

  8. Ranjith Powell 4 months ago

    Australians – you think too much. Just get on with the mine. It will happen whatever you think.

Comments are closed.