China's falling coal needs put projects worth $55b at risk
As much as $US50 billion ($55.8 billion) of planned coalmine developments in Queensland and NSW are at risk due to an expected slowing in prospective Chinese demand - with knock-on effects for a range of service suppliers.
On Monday, rail group Aurizon wrote down $197 million of assets due to a likely slowing in coal export volumes.
The warning, based on findings of a study by Oxford University and the Smith School of Enterprise and the Environment, came as the International Energy Agency released its latest midterm coal market report'
The agency said Chinese policies aimed at curbing coal dependency had prompted it to cut to 2.3 per cent its forecast for annual coal demand until 2018, down from 2.6 per cent forecast previously for the period to 2017.
"Many of the new projects announced will be delayed, postponed or simply abandoned," the agency warned.
"The huge number of announced capacity expansion and greenfield projects needs rethinking," it said, pointing to the "particularly significant" number of projects in Australia which are under threat.
"Most involve simultaneous mining, rail and port capacity commitments," it said.
China takes about one-fifth of Australia's coal exports, up from less than 5 per cent just a few years ago. The surge prompted a number of mine promoters to begin work on new projects.
The Oxford study focused on the 13 largest proposed Australian mines, several of which anticipate growing Chinese demand for Australian coal.
The largest, Adani's $10 billion Carmichael project, would produce as much as 60 million tonnes annually of coal. The $5 billion China Stone project would have an estimated 45 million tonnes.
The Oxford study noted the coal price required for many of the projects to be economic was unlikely to be sustained given China's changing demand and how in particular it could be affected in particular by environment-related factors.
With changes to its environment policies China would consume less coal than many expected, the study warned.
Given China's growing role as a price-setter, falling demand would reduce prices, it notes.
"This would result in coal assets under development becoming stranded or operating mines only covering their marginal costs and subsequently failing to provide a return on investment."
Sub-par returns would not only hurt backers and lenders, but would also hit the owners and developers of the infrastructure needed to get the coal from the mine to port.