Forum Replies Created
- hadi wrote:. Has anyone seen a silver lining around this dark cloud yet?
I don't post here very often, I "lurk".
But I have a view of an industry update that I will share.
The Coking coal industry is at a turning point right now. Consumption by China has exploded (in a good way). BUT stocks were at an all time high. We need to wait another 2 months to see if China continues to net import coal or not. I would ignore anyone who says the bad times are definitely over, but there is a "silver lining." Coking coal prices are up, customers are even meeting their contractual high prices from last year that they pulled out of in order to please the large mining companies – they are doing this to stay "in their good books" – they do this in case demand outstrips supply again. Believe me, coal producers remember who pulled out of contracts.
Australia will remain the #1 metallurgical coal exporter for a few years, so it doesn't really matter how many houses BMA builds, it won't be enough if prices go up.
Back in October last year I shared with you my thoughts that there would be empty houses in Central Queensland Bowen Basin mining towns, and most people on the forum did not agree. I suggested projects would be cancelled and people would be laid off…..
In my opinion, still too early to get into CF+ in the bowen basin.
I suspect the price of houses for sale is dropping, and the renters are not there, and it's getting worse.
Coal mining companies have slashed contractors and are all looking at approx 30% cuts to their OWN workforce. They will not normally award contracts while at the same time retrenching their own employees.
I think we're 12 months away from a big turn around."BHP Billiton said yesterday it would sack 1100 workers from its metallurgical coal mines as it moves to cut output over the next six months. A BHP spokesperson told ILN the majority of job losses will come from Queensland operations and 70% of job cuts will be contractors.
The hurt to contractors did not stop with the BHP announcement, with news on the same day that Bounty Industries had lost its contract with Anglo Coal at Aquila and would have to let go of 46 contractors and most likely the majority of its 50 employees at the project.
The two announcements are the latest in a growing line of job cuts at Queensland’s coking coal mines.
“Of great concern, and what we have to factor in as a state and a nation, is the impact on regional communities as resource sector job losses flow on through economic multipliers to other industries.”
For example, Roche said, in the Bowen Basin the resources sector is responsible directly and indirectly for one in every four jobs."
http://www.longwalls.com/storyView.asp?StoryID=560799
These towns typically have around 5-10,000 people (anyone know the real number?) – to have that many houses on the market at once is a good sign that people are fleeing. I'm sure you'll be able to get soem bargain places to buy soon, but putting a tennant in them will be much more difficult.
alani wrote:10% yields are back and 250bn projects and infrastructure planned in mining towns. I know where im buying next!!Do you really still believe the Bowen Basin coal industry is the place to buy right now…..
I've been posting on this forum since August that things might be on their way down.
I still think there's better things to do with your investment money right now.The latest news that I have heard:
McArthur Coal just got rid of all their contractors and also cut staff by 25% at Copabella and Morvale. Xstrata has just closed and suspended mining at Oaky No 1. All contractors there gone, and they are trying to relocate staff, and offering other redundancies. Rio Tinto to announce within the next 2 weeks their intentions. 14,000 jobs to go worldwide, and the guys at Kestrel tell me today that they expect around 1800 or 2000 of those will be in Australia.BMA haven’t done anything yet, but apparently it’s mainly coking coal exports that have been hit hardest.Xstrata set to make more announcements late next week or early the following week. Oaky North and Oaky Creek Surface are still operating
It's funny how quickly these things move.
I appreciate your comments Daedalus and it's interesting to hear differing views – after all, it's not my view, or even common sense that sets market prices and rents – it's the majority that rules.Anyway, I wasn't going to post anymore comments, but I found these two articles in just the past two days that I thought I would share with you:
Credit crisis to hit mining projects- Credit SuisseBy: ReutersPublished on 27th October 2008 LONDON – The credit crisis risks delaying around $50-billion of the mining sector's capital expenditure used to fund new or expand existing projects in 2009, Credit Suisse said on Monday. Limited access to financing may impact the construction of some 300-million tons of iron-ore, five-million tons of copper, ten-million tons of aluminium and over one-million ounces of platinum, which could be delayed two to three years, a report said. "We think up to $50-billion of the $75-billion scheduled for 2009 is likely to be deferred for at least a year," it said. This could then delay a further $150-billion scheduled between 2010 and 2012, the bank's said. "The potential delay of such capacity is likely to plant the seeds for the next bull market, especially given that the recent five-year bull market did not see large scale capacity additions with the exception of iron-ore," it said. The delayed projects represent around 66% of next year's spending plans, and for iron-ore it would affect some 35% of the current seaborne market.
"The most affected miners are likely to be those with excessive debt like Xstrata and the juniors who have limited access to financing," the report said.
"$50-billion of the $75-billion scheduled for 2009 is likely to be deferred" – wow that's a serious slow-down of capital expenditure – much more than I thought. I know it doesn't mention coal specifically, but iron-ore and metallurgical coal go hand in hand.
The other quote I heard on the Australian ABC AM show:
http://www.abc.net.au/rural/news/content/200810/s2403197.htmIn my opinion, there is increasing evidence that the "mining comapny spend pipeline" is fast becoming a pipedream for 2009.
Daedalus,
I understand what you are saying. I only included those references to provide backup for what I was saying. I am involved in the coking coal mining industry – outside of Australia. The comments were more my own view from within the industry. (I guess that you too might be involved). Also, the articles were before the recent world events but there are always people who talk up commodity prices – that is their job. Just like there are always people who talk up investment property prices – that is their job too.
Have you seen the long-term industry price estimates produced by many independent organisations – they almost all show a severe long-term reduction in price back to historical levels (metallurgical and thermal).
I think it is worthwhile people on this forum who are considering purchasing properties in towns with only one major industry understand the risk that they are taking on in return for fantastic returns – in this case Middlemount, Moranbah, Dysart even Blackwater (to a lesser extent).
As for being "production-constrained" – the current coal prices have stirred mining companies with coal resources all over the world that can compete with Australia at high prices – I believe that Australia will have a primary place within the international coking coal export market for many years to come – but that will be a much smaller market, with less mines and therefore empty houses in the towns….
Personally, I think the tide is on the way out, and it will return – I will wait to see how far the tide goes out.
Baalsy Bob,
I agree in general with what you say,
I agree that demand for energy will be with us for a long time, but not sure about metallurgical coal demand – that is less certain.
Australia certainly is well positioned globally for met. (coking) coal exports, but it is a small player on a global scale for thermal (power station generation) coal. Coking coal and iron ore are cyclic – about 7 years on average.I would argue that coal prices have ALREADY dropped: – spot prices for both thermal and metallurgical are down:
From http://www.globalcoal.com/news/coalnews.cfm
Newcastle Coal Price Declines for Ninth Week After Oil Slumps
Oct. 20 (Bloomberg) — Power station coal prices at Australia's Newcastle port, a benchmark for Asia, fell for a ninth week, dropping to a 9-month low, amid declining freight rates and as falling oil prices reduced demand for the fuel. The weekly index for power-station coal prices at the New South Wales port fell $7.20, or 6.4 percent, to $104.70 a metric ton in the week ended Oct. 17, according to the globalCOAL NEWC Index. Crude oil dropped 7.5 percent last week and has slumped 24 percent in the past three weeks.The mayhem on the global stock markets have had major impacts on mining companies. The smaller companies are having difficulty raising loans to pay for expansion and even struggling to renew existing finance. Typically, these "smaller" companies are the ones who use contractors to do their mining. So these will be the first to close or postpone expansion plans. If this happens, there will be a large decline in the number of people in the mining towns (although the contractors are typically the ones in the camps, rather than houses).
But even the "big" companies are struggling:
(from http://www.mineweb.com/mineweb/view/mineweb/en/page38?oid=63627&sn=Detail)
The top 5 global mining giants' share prices are all down over 40% since earlier this year. This is masssive.
Stock
From
From
Value
price
high*
low*
USD bn
GBP 13.15
-40.4%
13.4%
139.567
USD 19.15
-56.6%
16.1%
93.835
GBP 37.17
-48.1%
19.5%
95.493
GBP 19.73
-46.4%
17.0%
47.140
GBP 18.87
-57.4%
28.1%
32.621
This means their Debt to Equity ratios have just ballooned. If these prices do not rebound immediately, that means HUGE capital cut backs – they are outside their stated objectives for debt and cannot borrow anymore from the markets. Mark my words.
We'll see what happens.
I support Baalsy Bob's comments "Personally, i would not be investing in mining towns at this point in time."
I've worked in the Qld Bowen Basin coal mines for the past 15 years for a number of the big companies.
I've lived in a few of them – Middlemount, Moranbah, Biloela and Mackay but am now overseas.
I've also owned properties, but mostly have been able to rent them off the companies for anywhere from $16 to $80 per week.My word of caution is that the Bowen Basin is based around coking coal – exported overseas to the steel mills (except some of the Southern areas – Biloela, Moura, Blackwater etc. which are not actually in the Bowen Basin, and the coal is of varying quality). Anyway, the current boom is based around the price of Coking Coal, which at current prices of $300 US + is at prices way above anything ever seen before. Most people predict that price WON'T be sustained forever. I read on this forum that the Bowen Basin has enough coal for many years (100+ years?). That's true, but the mines won't close because they have run out of coal, it will be because the coal price will drop and eventually there won't be money to be made. At that point almost ALL the coking coal mines will close and there will be widespread rectrenchments, just like has happened a number of times before. At that time, most of the towns will be vacant – for how long is anyone's guess, but you need to make sure you get out of there before it happens….. Mining is a cyclical – it WILL happen, but I can't tell you when.
There are a number of other "threats" to the coal industry that haven't been mentioned on this forum, including:
1) Greenhouse gas emissions and Carbon Trading Schemes – have the potential to damage Australia's competitivity. Whatever happens, it will be in the next 5 years.
2) Emerging producers: e.g. China and India – they have the potential for producing coal much cheaper with cheap labour and they are closer to the customers (cheaper sea freight).
3) Customers (steel mills) would LOVE another country other than Australia to become competitive, so that they can introduce serious competition and lower prices – they are prepared to subsidise other countries (that's why I'm overseas).
4) Global Economy – as the Australian dollars appreciates against the US dollar, the Aus miing industry suffers as all global trading is done in US dollars. Also, the arse falls out of demand whenever the US falls and no-one knows whether Chinese demand is really there….I think the opportunities in places like Middlemoutn and Dysart are fantastic right now, but I just wanted to throw a word of caution – everything comes at a price and for the returns you are getting now, there is substantial risk – whether you realise it or not. As long as you understand that risk and are happy that you are getting a sufficient return for that risk then go for it.
Final Thought: With all those coal miners out there earning $100K-$200K p.a. why do you think they haven't already snapped up all the properties? I sold my home when I left and took the substantial capital gain.
