Coal projects may be stranded by China's slowing demand
As much as $US50 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.
Already on Monday, rail group Aurizon wrote down $197 million of assets due to a likely slowing in coal export volumes.
A study by Oxford University and the Smith School of Enterprise and the Environment found $US50 billion of planned coalmines in Australia are at risk of becoming "stranded" due to changes in China's anticipated demand.
The warning came as the International Energy Agency released its latest mid-term coal market report, which 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 IEA warned. "The huge number of announced capacity expansion and greenfield projects needs rethinking," it said, pointing to the "particularly significant" number of projects planned in Australia that are under threat.
"Most involve simultaneous mining, rail and port-capacity commitments," the IEA said.
China takes about one-fifth of Australia's coal exports, up from less than 5 per cent just a few years ago, with the surge prompting a number of mine promoters to begin work on new projects.
The Oxford study focused on the 13 largest proposed Australian coal 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, with the $5 billion China Stone project planned at about 45 million tonnes.
"The coal price required for many of these projects to be economic ... is ... unlikely to be sustained given China's changing demand for coal and how in particular it could be affected by environment-related factors," the Oxford study noted.
Changing environment policies will result in China consuming less coal than many expect, the study warned. "Given China's growing role as the price setter ... falling demand will ... reduce coal prices," the study noted.
"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."
Not only would sub-par returns on these projects hurt their backers and lenders, but they would also hit the owners and developers of the infrastructure needed to get the coal from the mine to port.
Pressure to improve air quality and to cut carbon emissions as China has begun to move to place a price on carbon, and switching to gas away from using coal, are also factors that are "all likely to reduce China's growth in coal imports below levels currently expected", the study warned.