ARRC Internal Update Jan 29 2013

1) Indonesia dropped its plan to curtail the export of low-calorie thermal coal

2) Dry bulk panamax market heavily oversupplied, unlikely to find support in 2013

3) Tom Albanese: another mining chief bites the dust as sector negotiates different era

University of Alaska Fairbanks graduate Tom Albanese was shown the door at Rio Tinto after he was assigned responsibility for $14 BN in write-downs (that's just this year!). Also leaving are the CFO and the head of Strategery. After two acquisitions totaling $40BN were written down to $10BN (in part because of incompetent due diligence in the purchase of a coal property in Mozambique) someone had to be held to account. It turns out the Mozambique coal was actually somewhere other than where they thought it was; and even had the coal been in the right place they couldn't have transported it out when it came time to actually do so. Perhaps the most notable thing about this story is that Albanese will walk away with the blame and only a few million dollars. Typically in cases when CEOs waste more than a billion dollars they are paid at least $50 million. That's the market rate according to the compensation consultants. 

4) China's new contracting system for power plant coal got off to a good start (China Daily) and rail authorities said they will add 1,800 miles of coal-transporting capacity this year (Business Week); both developments are expected to add downward pressure to coal prices. 

This increase in coal transport capacity does not include the new Xinjiang - Luohan line to be completed by the end of this year. Xinjiang has relatively unexploited cheap-to-produce reserves of thermal coal (i.e., strip-minable) of more that 2TN tonnes (twice as big as the Powder River Basin). Should China decide to use Xinjiang coal in the eastern part of the country by building up rail links and transmission capacity, it is difficult to imagine the export coal market in the Pacific sustaining its recent development much longer. We'll see if laissez-faire economic policy or long-term Western China development policy will decide what happens to all that coal -- although given the size of the reserves it is possible that both policies will work.

5) After my update two weeks ago a flurry of downbeat articles on export coal in the Pacific appeared:

Reuters:record China imports unlikely to excite coal market; 

Barrons: More Export Coal Won't Stoke Demand for US Coal; 

Nemo: RIP Seaborn Coal; 

China Daily: Surplus Supply Keeps Prices in a Low Ebb;