Bede Boyle Interview: Business Opportunities for Australian METS Firms
Austmine interviewed Bede Boyle following Coaltrans Australia Conference in Sydney on 25&26 August 2016, on Business Opportunities for Australian METS Firms.
Chairman of Manufacturship Group, Bede Boyle has been involved with the Australian Coal Industry and METS sector over four decades and is a Director of Coal Ventures Limited.
Austmine Q: The Australian Coal Industry is experiencing an extended period of low prices. When do you see future upside for the Coal Industry and METS suppliers?
2016 is showing signs to be the year of transition for both Thermal and Metallurgical Coals up from the bottom of the price cycle with tightening supply availability of higher quality coals.
Firstly, 90% of Australian Coal is exported to Asia. Despite the western world and Australian ‘anti coal’ press on the ‘demise of coal’, Asia demand for thermal coal actually grew 70% over the decade 2004 to 2015 driven by electricity demand. New coal fired power stations are currently being constructed in China, India, Vietnam, South Korea, Taiwan and Bangladesh.
However, in 2012 Australian Coal lost its 2006 competitive advantage and was trapped in the Savage Jaws of a relentless Cost / Price Squeeze. The fundamental problem was the convergence of:
- Global oversupply of both metallurgical and thermal coal depressing the US$ sale price, and
- Escalation of Australian $FOB cash costs in 2011 and 2012, exacerbated by the persistent high AUD/USD exchange rate which combined to erode Australia’s competitive advantage. Coal companies incurred financial losses, precipitating mine closures and asset sales. METS firms were impacted by the cancellation of mine expansion projects and curtailing investment in development of new projects.
The Australian Coal Industry has successfully Reduced its Cost Base by about 30% from 2012. However, continuing global excess supply capacity overhang has resulted in collapse of thermal coal prices with FOB Newcastle 6,000kcal prices falling from US$80 in January 2014 to US$50 in January 2016.
The ‘good news’ for Thermal Coal in mid-2016 is that we are seeing transition from global supply surplus to supply deficit boosting prices for Newcastle 6,000kcal coal to US$60/t [A$80] in July 2016. At A$80/t low cost producers will be cash positive, however this is still well below the incentive price for investment in major mine expansions or new projects.
In the longer term Bede highlighted the fundamental and historic shift occurring in the world’s economic activity from West to East, where by 2025 ASIA as a whole is projected to account for almost half of the world’s GDP, sustaining demand for Australian high quality Thermal Coals.
The ‘good news’ continues with Metallurgical Coal, with the recent strengthening in spot metallurgical prices indicating a stronger 2016 Q4 coking coal benchmark settlement above US$100/t. During August the actual difference between the 2016 Q3 benchmark price of $92.50/t FOB and spot prices for coking coal widened significantly to $25- 30/t.
India is seen to be a strengthening market for Australian high quality metallurgical coals. George Edwards, Director Coal Ventures Limited, observed to Coaltrans delegates that imported coking coal accounted for two-thirds of the total coal consumption by the India steel sector in 2015 and that percentage will increase, as domestic production cannot increase significantly and India quality is inferior to imported coals. India will need to increasingly rely on imported coking coals for its steel industry requirements, which means importing more than 50Mtpa in calendar year 2016 [a 14 per cent increase over 43.7Mt imported in 2015] and increasing thereafter as steel production increases.
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Austmine Q: Where are the immediate opportunities for METS
Bede observed that there are immediate opportunities for those METS firms who can demonstrate agile cost competitive on-site operational and maintenance support to existing mine, rail and port operations. Including Operational Consumables, Rapid response Breakdown Repairs together with Plant and Equipment Refurbishment.
Demonstration of Agile Cost Competitive Services will successfully position METS firms to capture emerging opportunities in brownfield projects which will precede new coal projects.
Austmine Q: Where do you see export opportunities for Australian METS?
India’s desire to improve the productivity and safety of domestic coal mines through advanced technologies may present opportunities for Australian METS firms who can establish a channel to market with local India partners.
China is committed to modernising its Coal and Power Industry across the key dimensions of safety and environmental management. China opportunities for METS include methane monitoring and drainage and power generation. Mine safety technologies and systems is another area with significant potential for Australian METS firms who can establish a channel to market with China partners.
China Australia Free Trade Agreement [ChAFTA] provides opportunities for Australian METS manufacturers to source low cost materials and manufactured components from China which can be integrated into Products for Australian and ASEAN markets.
Austmine Q: Do you have any concluding observations?
Bede strongly suggested that METS firms should look at Diversification by Leveraging their Capability into Agricultural & Food, Building & Construction, Defence and Oil & Gas Industries.
Bede Boyle, Chairman Manufacturship Group, founded by Jason Furness to assist CEOs Rapidly Lift Profits by a powerful blend of Pragmatic Executive Advice and Leadership Mentoring based on Global Best Practices to simultaneously Reduce Costs and Boost Revenue.
Bede is Director of Coal Ventures Limited, and has over two decades as a corporate advisor to clients including AGL Energy, BlueScope Steel, Exxaro Coal, Fluor Australia, GVK Hancock Coal, Leighton Contractors, Powercoal, SMEC and Xstrata Coal. His international clients include Elliot Management USA & HK, Genesee Wyoming Inc. USA, OPG Power India and SMEC India.
Bede can be contacted at +61  419 213 010 or firstname.lastname@example.org