Cracks widen for Queensland coal

Queensland seems oblivious to the issues its coal sector is facing. With major changes in world energy and a lower demand for coal from China, the state needs to open its eyes to the trouble ahead.

Once you recognise a problem you have taken the first step to solving it. One of Australia’s great wealth powerhouses, the state of Queensland, is in trouble. And more seriously it has not yet recognised the seriousness of the problem so the solutions are a long way off.

Late last week I was interviewed by the ABC’s Brisbane morning presenter, Steve Austin, on the problems of middle income Australia but the conversation swung to Queensland coal and it was clear that Steve had no idea of the deep problems facing coal in Queensland.

And who could blame him because the Queensland Premier Campbell Newman had recently increased royalties on coal because Newman believed (incorrectly) that the industry was earning big profits.

And the coal problems come on top of the effect the high dollar is having on the Queensland tourism industry and the major cuts in the Queensland public services required by Campbell Newman because his predecessor "spent” the boom money, which never arrived.

It's true that Queensland has a major LNG gas industry involving huge investment and coal will still be mined in large quantities. But the state must now come to grips with the fact that there has been a major change in world energy (On the cusp of a new US prosperity, October 31) and the convulsions in world currency markets are preventing the Australian dollar falling and proving a cushion as it would normally do.

It’s true that the most serious problems in coal are in the thermal or steaming variety. Coking coal for steel making, while also depressed, is in better shape. About thirty per cent of Queensland coal exports are thermal. At a recent Melbourne Institute conference government adviser Ross Garnaut said that in China thermal coal is in "deep shit,” because China’s demand for thermal coal had fallen sharply partly due to Beijing’s increases in renewables such as hydro, wind, and solar plus nuclear energy. There had been wasteful over-investment in Australian thermal coal.

Garnaut did not mention Queensland but Queensland, along with New South Wales, is in Australia’s front line of the global thermal coal problem.

Garnaut also believes that in the longer term coking coal will also be affected by lower demand from China. And here we return to Steve Austin.

After my ABC interview BHP Billiton announced that it was increasing coking coal production capacity by 50 per cent – and no doubt Steve and his radio audience classified me as another Queensland knocker from down south.

However, while technically BHP was correct in claiming a 50 per cent capacity rise, the company had in fact closed mines and the increases were either small projects commissioned in the boom time and/or flood recovery. BHP’s continuing mines can produce only a little more than they did in 2009-10 after eliminating the mine closures. And because profits are way down BHP, along with all coal miners, is undertaking major cost reduction programs, which will impact the coal communities. Queensland has to first recognise the problem, then lower royalties and plead for relief from the carbon tax measures.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles