Mon, October 2, 2017 9:58 am

Coal Association of Canada/Vancouver: Last week Dianna attended the annual CAC conference held in Vancouver. What a difference a year makes! This year the event had a much more optimistic buzz, albeit a cautious one with approx. 160 attendees compared to only 90 last year when there was a palpable gloomy mood. The overall takeaway was that Canadian producers are encouraged by current seaborne thermal and met price trends and have plans to take full advantage by either increasing output at current operations and/or bringing on supply projects, both new and previously idled. As is often heard at these events, attendees were concerned that history would repeat itself and the coal industry may again produce its way into a cyclical price downturn.

  • Index Pricing: In the opening keynote session, Ernie Thrasher of Xcoal, explained that while it is great to have indices, the SGX forward curve is not indicative of the actual physical market. He added that eventually the liquidity and depth would develop, but it’s not there yet. Asian steel mills are still conservative and have not set up trading desks to sell back into the market, which will help to bring the liquidity. Ernie said indices are not regulated and currently favor the “big guys” one-sidedly. When asked if he thought the new index-based pricing system was workable, he responded that “it’s what customers want, so if we can’t make it work, we don’t have a customer.”
  • Ridley Terminal: British Columbia’s northern coal export terminal has a current throughput capacity of 18 mm MT/yr, but engineers are performing a feasibility study that evaluates possibly expanding operations to 33 mm MT/yr. The port, which is a 16-day voyage from Japan, is exploring opportunities where it can diversify into shipping other commodities in an effort to remain profitable and competitive. Right now they are not experiencing any delays given that both port and rail capacity are underutilized.
  • Millennium Bulk Terminal: Following last week’s news that Millennium Bulk Terminal was denied a water quality permit from the Washington Department of Ecology, we spoke with attendees who opined that the export project is not dead in the water. They believe the project will still ultimately prevail, but will be a matter of when, not if.
  • Global Supply Study: Natasha Tyrina of Wood Mackenzie presented her study that catalogued 200 mm MT of potential met projects and 400 mm MT of potential thermal projects around the globe, while clarifying that they may not all come to fruition. Thermal supply would mostly materialize around the massive Galilee basin in Australia and projects in Indonesia, and would require prices higher than $72/MT to incentivize projects to replace depletion. New met projects in Australia will have higher ash content, as will coals from Mozambique, which could present an opportunity for Canadian met coals.
  • Environmental Concerns: Environmental stewardship is a significant part of the Canadian coal chain. The conference included various presentations that covered land reforestation, protection of bighorn sheep, grouse and grizzly bears, ecological restoration and water quality.