More Australian mines to shut as coal woes deepen
MATT CHAMBERS THE AUSTRALIAN APRIL 28, 2014 12:00AM
COKING coal prices have slumped to six-year lows, many Australian mines are not making money and the industry is set to close more of the mines that produce the nation’s second most valuable export.
A dramatic fall in quarterly contract prices for the steelmaking raw ingredient has caught industry players by surprise and led coal giant Peabody Energy to declare it is considering the closure of Australian mines it recently indicated were safe.
As boom-time-approved expansions continue to increase supply, the June quarter coking coal contract price has fallen from $US143 a tonne to $US120 a tonne, which is close to typical cash costs for the east coast coking coal industry, according to Credit Suisse analysts.
This means when things such as corporate, financing and sustaining capital are added in, most producers would be losing money.
Peabody chief Greg Boyce revealed the St Louis-based company, which has already cut jobs and shut down some mines here in recent years to stay profitable, was considering closing more Australian mines.
“With the change in the metallurgical coal environment in the last quarter, we’re having some pretty serious looks at a couple of operations,” Mr Boyce told US investors after the release of the company’s first-quarter earnings last week.
“These operations are getting significant scrutiny because at this lower price horizon, they’re much more challenged,” he said when asked if more mine closures were coming.
In January, Peabody told investors that a decision to close its Wilkie Creek thermal coal mine should not be taken as any indication that closures of the rest of its operations were being considered.
Coking coal, mainly from Queensland, is the nation’s second-highest export earner after iron ore and brought in $22.4 billion of export revenue last financial year. Thermal coal, used primarily in power stations and mainly from NSW, raised $16.1bn.
Contract coking coal prices that peaked at $US330 per tonne in late 2011 have fallen steadily since then as the US and Australia exported more.
Despite the price drop, BHP Billiton (whose Queensland mines make it the world’s biggest coking coal exporter), Anglo American, Whitehaven and Peabody have all brought on or are bringing on new mines that were approved when nobody saw prices plummeting as low as they have.
As well as the new supply, Chinese steel mills have recently stepped away from buying imported coking coal as uncertainty continues around the Asian powerhouse’s economic growth.
Spot prices have fallen further than contract prices, with the Platts price index slipping as low as $US105 per tonne earlier this month before recovering to about $US110.
“For the second quarter, we have assumed that $US120 will become the benchmark and this will mean that most Australian metallurgical coal producers will be loss-making at the profit and loss level, with FOB (free on board) cash costs typically in the range of $US110 to $US115 per tonne,” Credit Suisse said in a client note.
The second-quarter settlement for Queensland coal, which was reportedly signed by Anglo American last month, has led Credit Suisse to cut its 2014 coking coal forecast by $US20 a tonne to $US133.
Most Australian miners have been on a year-long campaign to cut costs, meaning there may not be too much more that can save mines that are losing money.
Even BHP, one of the world’s lowest-cost miners, is making little if any money from coking coal at these prices.
“While costs might be squeezed a little lower, we think the majority of cost-saves have now been made in Australia,” Credit Suisse said.
The bank said BHP generated $US17 per tonne of earnings before interest and tax from its coking coal operations in the first half of 2013-14.
Wake-up call on new coal projects
SARAH-JANE TASKER THE AUSTRALIAN MAY 06, 2014 12:00AM
AUSTRALIAN coal projects yet to be developed will struggle to be funded given the sector is in a “structural” downturn, the author of a new industry report says.
Tim Buckley, director of energy finance studies, Australasia, at the Institute for Energy Economics and Financial Analysis, has outlined in a report that two mines planned in the Galilee Basin are fundamentally unprofitable and commercially unviable.
Hancock Coal, owned by Indian company GVK and Gina Rinehart’s Prospecting, is developing the Kevin’s Corner and Alpha thermal coalmines in Queensland’s Galilee Basin.
“The financial justification for Galilee Basin coal is based on flawed economic assumptions, including a reliance on the increasingly uncertain prospect of India being able to continue to finance and economically justify building imported coal-fired power stations,” he said.
“Australia risks funding major new thermal coal projects on what I consider is a flawed assumption on ever increasing Indian import coal demand.”
Mr Buckley said he was trying to provide a different perspective to challenge the general wisdom behind the development of these projects.
“The thermal coal price is half of what it was when GVK acquired its interest in the Galilee,” he said.
“If the price of coal has halved then the economics of those projects has dramatically deteriorated. A lot of people were talking about coal being in a cyclical downturn, I would argue it is in a structural downturn.”
Mr Buckley said the report was a wake-up call to investors and industry, questioning the economic basis for an increasing number of proposed coal projects in Australia.
“The report found that imported coal would need to be priced at double the wholesale price of India’s electricity, which categorically discredits the nonsense arguments that it might alleviate India’s energy poverty,” he said.
China’s need for coal to wane as mineral rush takes reality check
SARAH-JANE TASKER THE AUSTRALIAN MAY 15, 2014 12:00AM
CHINA’S hunger for Australian coal will diminish over coming years and investments in the resources sector will cool as the previous rush into Australia’s minerals returns to “reality”, a leading economist has warned.
BNP Paribas’s chief economist Xingdong Chen said Chinese investors had learned lessons from previous “feverish” investing in Australia.
“Australia in terms of mining has been over-invested,” he said.
“Before 2013 there was a lot of investment given where the iron ore prices headed. Chinese investors intensified that kind of fever, now investors have learned their lesson.”
He outlined that the level of investment China made into Australia declined last year, moving Australia to the No 2 position, behind the US.
China-based Mr Chen said that the decrease of overseas direct investment in Australia correlated with a drop in commodity prices.
But he believes that China’s level of investment in Australia will recover, highlighting that it could be the uranium sector that benefits in the future as China increases its reliance on nuclear power.
The chief economist said that while there had been over-investment in Australian resources by China and that commodity prices had plunged, it was inevitable that interest from the economic powerhouse would return to a normal level in a couple of years.
“The great potential is nuclear power and then China will have a dependence on uranium. China will need to rely on imports.”
Mr Chen said that there were up to 25 types of commodities that China could not be self sufficient in and it would increasingly rely on imports, particularly for energy sources such as oil, gas and uranium.
“Coal is less welcome, they won’t be able to get rid of it but coal is a major source of pollution. By 2020 they want to reduce coal consumption for energy generation,” he said.
“China has a plan to increase the less than 2 per cent of nuclear power to more than 20 per cent by 2020 — that is more than a 12-times increase, it is very aggressive.”
Mr Chen added that China still had up to 20 years to go in its urbanisation plan, which would continue to require infrastructure that needed raw materials.
He said that while Australia faced increasing competition from other regions trying to increase iron ore imports into China, it was a market that was big enough for everyone to play a role.
Private investors capitalise on coal woes
Drilling DownAngela Macdonald-Smith
729 words
16 May 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
With several Australian coalmines virtually on their knees at current commodity prices, it seems some investors are sniffing the winds of opportunity.
It's a buyer's market out there, according to former Gloucester Coal chief executive Barry Tudor, who expects to take his pick from several opportunities as he goes about building a metallurgical coal business across Australia, New Zealand and Indonesia, backed by $US200 million ($213 million) from US private equity firm Denham Capital.
At the larger end of the spectrum, former Xstrata boss Mick Davis is in the picture for BHP Billiton's thermal coal assets in Australia with his new private equity vehicle X2 Resources that is backed by up to $US3.75 billion of funding.
Judging by his $US70 million deal to buy Peabody Energy's Wilkie Creek thermal coalmine in Queensland this week, Nathan Tinkler hasn't lost his enthusiasm for coal, despite the pain his earlier investments have inflicted on his finances and his reputation.
With the next-best bid for the mothballed mine said to be just $US20 million in cash, there are plenty of doubters around as to the merits of Tinkler's latest bet on coal, which is valued at up to $150 million when freight obligations and other liabilities are included.
But, as he sees it, we're in the "value" part of the cycle even though we may not be at the bottom, as he told the Financial Times.
Even so, there is little sign of much interest in merger activity by the Japanese and Korean buyers so evident during better times for coal. Rather, it is the Chinese who are helping fill the gap.
The number of deals being done is down on a few years ago but there's plenty of activity below the surface, reckons Morgans Financial resources analyst Tom Sartor.
The difference this time around is that much of the activity is being driven by necessity rather than by exuberantly priced offers.
The coal-rich MDL 162 permit in Queensland, which Macarthur Coal paid more than $334 million for in 2010, changed hands earlier this year for just $70 million when Wesfarmers took it from Macarthur buyer Peabody.
At an IHS coal seminar in Sydney this week, Sartor revealed he's having a hard job trying to convince equity investors that this low point in the cycle is the smartest time to be sinking funds into undervalued assets.
While sharemarket investors aren't ready to believe it, privately funded parties think there are bargains to be had despite the grim price outlook.
IHS puts spot prices for quality metallurgical coal at $US115 a tonne, and while that's up from a low of about $US110 four or six weeks ago, prices are down from a peak toward $US400 quoted at times in the wake of the 2011 floods in Queensland.
With the June quarter benchmark only slightly higher than spot at $US120, IHS reckons most local producers are under water financially.
However, cutbacks in production have been meagre as miners on the east coast struggle under onerous rail freight contracts that fix their transportation costs no matter how much they actually move.
US miners have also been slow to pare back output, deterred by the costs of keeping permits idled. Some are betting that may change if third-quarter prices are fixed at roll-over prices, so around $US120.
IHS says the pressure will build over this year for more cutbacks or closures if, as it expects, Chinese demand growth starts to wane. So far, Chinese imports of Australian coal have been holding up despite some reductions in Russian, American and Canadian imports but that isn't expected to last.
In short, China, which has so far been the saviour of the Australian coal sector, can't be counted upon to continue in that role.
Vale's Carborough Downs in Queensland, which is already struggling with the collapse of the mine roof, as well as its Integra operation in the Hunter Valley, were floated at the Sydney seminar as among those sites at risk. Peabody is also expected to make more tough decisions at some Queensland sites.
It points to more merger and acquisition opportunities for those who have the nerve.
amacdonald-smith@afr.com.au Twitter: @angelamacd
Fairfax Media Management Pty Limited
Document AFNR000020140515ea5g0002q
Second-rate coal assets to hit market as Japan moves on
RICK WALLACE AND MATT CHAMBERS THE AUSTRALIAN JUNE 09, 2014 12:00AM
Assets held by Japanese trading houses Source: TheAustralian
A SWAG of underperforming or undeveloped Australian coal assets could be thrust on to an already depressed market as Japan’s trading houses — among the biggest investors in Australia — unveil huge divestment programs.
The Japanese giants are likely to use the returns from asset sales to invest in infrastructure assets as state governments unveil big privatisation programs and new road and rail projects, deals analysts believe.
The six major trading houses in Japan have historically been some of the biggest investors in Australia — investing more than $60 billion in the past five years alone — but they are looking to apply new return-on-equity targets that could see underperforming units here sold off.
Analysts say second-tier or undeveloped resources assets — particularly coal — would be first in line to be sold off as the trading houses look to shift capital into agriculture and infrastructure.
However, resources specialists say any fire sale is unlikely to raise much cash given the dearth of buyers for coal assets at the moment.
The prospects of a fire sale of resource assets was first raised with the advent of detailed new targets in trading house Mitsui’s three-year plan, which revealed the Japanese giant would divest up to $9bn worth of assets to part fund a $15bn investment drive.
Mitsui, which has set a target for returns on equity of 10-12 per cent — has played down the prospect of Australian resource assets being sold, hinting that most of its acquisitions were bought cheap and remained at the acceptable end of the cost curve.
However the other major houses including Sumitomo — which have billions of dollars invested in Australia — are pursuing plans to wholly fund its near-term $7.5bn global investment pipeline by selling existing assets.
Bankers have seized on the development as a new trend likely to be followed by Mitsui’s main rivals, who together have tens of billions of dollars of Australian investments and appear set to apply tough new rate of return criteria to their current portfolio of assets.
Andrew Parker, the Asia leader of PricewaterhouseCoopers’ national deals desk, said the divestment strategies represented a “step change” in the approach of the trading companies.
“The bigger targets for divestment are definitely in the resources sector and predominantly in coal,’’ he told The Australian. “Most, if not all, of the producing assets would be potential disposal candidates if they are not meeting ROI (return on investment) hurdles, which even the best assets that the global majors have are struggling to do in the current environment. “I think all of the trading houses to varying degrees are thinking in these sort of terms. They do have businesses that are in trouble and they might want to divest. Their trouble will be finding someone that wants to buy them.”
BBY analyst Mike Harrowell said there were few natural buyers for minority stakes and this would reduce the value trading houses would get in any sell-off.
“The Chinese want to be in control, and are unlikely to buy the minority positions,” Mr Harrowell said. “The most likely buyers are the JV partners, many of whom have little cash to spare … and would only offer a heavily discounted price.”
RBS Morgans analyst Tom Sartor said China had been increasingly taking over from the Japanese, Koreans and Taiwanese as the new co-owners and developers of Australia coal assets. “However their approach — often by full takeover — has not been as efficient (or) as successful as their predecessors,” he said.
Mr Parker said the forthcoming pipeline of infrastructure projects in Australia, as well as the agriculture sector, would be the target for increased investment for many trading houses.
“It’s been a wonderful 60-year relationship between Australia and Japan that has been prominently defined by interest in coal and iron ore and gas investments.
“But I do think there is a new era on our doorstep and that’s going to be driven by the trading houses’ new strategy … in terms of diversifying away from the minerals and resource sector.’’
He said there were numerous state road and rail projects on the drawing board that would benefit from Japanese capital and know-how in both the construction and operation phases, he said.
“Japanese companies have excellent skills to run and operate these projects,’’ he said. “They are (likely to offer) slightly less return than resources, but also less risky.
“The idea of being able to build infrastructure and operate as an equity investor in the PPP (public private partnership) sector and become involved in the operation and maintenance — there are lots of opportunities.”
Mr Parker mentioned the Moorebank Intermodal Hub in Sydney, the Port Botany Road and Rail Interchange, the soon-to-be sold off Port of Melbourne and the proposed grain terminal at Port Kembla in NSW as the kinds of investments that might appeal to Japanese groups.
The recent Queensland budget unveiled a host of asset sales including generators CS Energy and Stanwell, the Gladstone Port Corporation, the Townsville Port and Mt Isa-Townsville freight line and elements of the electricity network. Queensland is also eyeing a public-private partnership for the Toowoomba Second Range Crossing road project.
Victoria’s budget outlined a strong pipeline of state road and rail projects including the East West Link motorway project and the $11bn Metro Rail Link tunnel project. NSW has the WestConnex motorway project on the drawing board.
Manuel Panagiotopoulos, founder and director of Australian and Japanese Economic Intelligence consultancy, said trading houses were definitely looking at infrastructure and agriculture investments in Australia and divestment was an option for funding in some cases.
“They are all looking at making new investments.”
Infrastructure Partnerships Australia chief executive Brendan Lyons said: “Australia’s core and core plus infrastructure assets are globally attractive, which is being reflected in the heightened competition and investment in both brownfield and greenfield assets.
http://www.theage.com.au/business/market...0073z.html
Oversupply putting coal prices under pressure
Date
August 4, 2014 - 11:46PM
Mark Mulligan
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Dumped: oversupply in coking and thermal coal markets is putting pressure on mining stocks. Photo: Robert Rough
Dumped: oversupply in coking and thermal coal markets is putting pressure on mining stocks. Photo: Robert Rough
Coal markets are awash with the dark combustible as supply rises and demand comes under pressure, although economists are optimistic on a longer-term view.
These conditions are driving down prices for coking and thermal coal, and undermining the share prices of Australian producers such as Wesfarmers, Whitehaven Coal and New Hope Corporation.
Rising stockpiles and price weakness were also factors in the write-down and eventual sale last week by Rio Tinto of its disastrous $3.9 billion Riversdale Mining coal project in Mozambique for a mere $53 million.
ANZ research shows that the forecast average price of coking coal, which is burned in blast furnaces to make steel, for this calendar year is $US125 a tonne, compared with $US159 last year.
The prognosis for thermal coal, which is used mainly for energy generation, is not much better. ANZ forecasts an average price this year of $US74 per tonne, against $US84 last year. ANZ says the situation is “unlikely to improve in the near, or medium, term” and has downgraded price estimates for the next three years.
It says the main driver of oversupply has been China, whose coal production has risen by 3.3 billion tonnes – or 400 per cent – since 2000. Australian coal suppliers have been contributing to oversupply, too. Exports from Australia rose by 13.5 per cent year-on-year in 2013, to a record 360 million tonnes. So far this year, exports are up by more than 10 per cent on a comparable 2013 period, ANZ says.
Australia has the world’s fourth-largest proven reserves of coal, and accounts for more than half the world’s exports of coking coal, the Minerals Council of Australia says.
Companies with coal operations are feeling the pinch of price weakness in their shares prices. Despite good news from conglomerate Wesfarmers’ retail operations this year, weaker coal prices have held back its share price. Citigroup recently cut its 2015 profit forecast for the company after factoring in lower coal prices and rising costs at Wesfarmers’ Curragh mine in Queensland.
Wesfarmers' shares have risen by 4 per cent this month to $43.65, but the stock has underperformed the broader market this year, falling by 0.9 per cent, compared with a 4 per cent rise in the S&P/ASX 200 index.
While Coles’ profits are expected to rise by 9 per cent and Bunnings’ by 5 per cent, Citigroup expects Wesfarmers' earnings from resources to fall to $47 million in 2015, down from a forecast $74 million in 2014 and $148 million in 2013.
Shares in Whitehaven, whose mines are concentrated in the Gunnedah basin in NSW, are down by about 75 per cent from historical highs in 2011, and by 12 per cent this year.
Queensland coalminer New Hope’s stock is trading 28 per cent lower on the year, and almost 50 per cent off historical highs in late 2011, the peak of the current pricing cycle for both types of coal.
Despite the bleak near-term outlook, ANZ is more upbeat in the longer-term, saying reduced capital expenditure on new mine capacity in Australia and Indonesia “plants the seeds for a tighter supply backdrop and price recovery in 2016 and 2017”.
At the same time, it remains “positive on longer-term demand dynamics, with coal remaining a base-load power source in China and [with] industrial and infrastructure activity in India gathering pace”.
Chinese capital to largely end coal use 'by 2020'
JOHN conROY AUGUST 06, 2014 12:15AM
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The city of Beijing will ban the use of coal, which makes up one quarter of its energy consumption, in its six main districts by 2020, Xinhua reports.
According to the state media agency, the Beijing Municipal Environmental Protection Bureau says Dongcheng, Xicheng, Chaoyang, Haidian, Fengtai and Shijingshan districts will all stop using coal and coal products and shut down coal-fired power plants and other coal facilities.
The city and surrounding region is notorious for being cloked in smog, thought to be linked to high levels of lung cancer.
Fuel oil, petroleum coke, combustible waste and some biomass fuels will also be prohibited as part of the effort to fight pollution, Xinhua said
Coal ban set to expand beyond Beijing
JOHN conROY AUGUST 06, 2014 7:45PM
Plans announced by state media agency Xinhua yesterday that China's capital will be coal-free by 2020 in its six major districts could be extended to other provinces, The Australian Financial Review reports.
According to the newspaper, the ban – which is also said to include fuel oil, petroleum coke, combustible waste and some biomass fuels – could also extend to neighbouring provinces including Hebei, Shaanxi and Shandong, coal analyst Liu Donga, from Zuo Chuang Information Group, said.
Shandong is the largest coal burning area in China, burning as much as Japan and Germany combined according to Greenpeace, The AFR reported, but Australian exports are unlikely to be affected by the Beijing ban, with the city consuming only 15 million tonnes of the nations 4 billion tonne annual appetite.
Coal always wins and will stay No. 1, says carbon king Boyce
Amanda Saunders
928 words
12 Aug 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Peabody Energy chief executive Greg Boyce is calling on coal producers to spend more time and money fighting "symbolic" movements against the industry and is confident China will not adopt a cap on carbon emissions.
As the anti-coal collective gathers more mainstream backers, St Louis-based Mr Boyce says the industry needs to do more to counter the attacks, particularly the global fossil fuels divestment campaign.
But he is confident that "coal always wins out".
"If as an industry if we spent more time educating, if we all spent more money, we would have less of these symbolic moves, which are really done without a full knowledge of the equation," he said in an exclusive interview.
If the coal industry "spent more time and money explaining the good that we do . . . people [would] understand what the new coal industry looks like", he said.
Mr Boyce expects global coal demand to grow by 700 million tonnes over the next three years, driven in the main by China.
Peabody, which has a market capitalisation of about $US4.2 billion ($4.5 billion), is one of the largest coal producers in the world.
"There is a reason why coal has been the No.1 fuel in the world for the last 10 years, and why it is projected to be No.1 over the next 10 years: because it always wins out," he said.
"From a global perspective, 80 per cent of our energy comes from fossil fuels. It's going to be that way for the rest of our lifetimes and beyond."
A global divestment campaign to push banks and fund managers to pull capital from the coal industry has just started to gain momentum in Australia. It aims to stop coal's progress by forcing a wedge between the fossil fuel industry and debt and equity investors.
"I think the folks that have gone down this path are doing it perhaps [because] they believe there is some symbolism in it," Mr Boyce said.
"But at the end of the day they are not putting economic activity – and ultimately they are not putting what is the best plan for a better environment – at the top of their priority list."
Like BHP Billiton boss Andrew Mackenzie, Mr Boyce argues that coal is crucial to pulling the world's poorest out of "energy poverty", and says divestment proponents are largely from developed countries.
The local coal divestment movement is backed by 350.org and activist investment group Market Forces; the key targets now are Australia's big four banks. It has won support from Bendigo and Adelaide Bank, AMP Capital, education industry fund Unisuper and a collective of smaller Australian deposit takers including bankmecu, Credit Union Australia, Beyond Bank and Defence Bank.FIfth-largest Australian producer The lion's share of Peabody's operations are in the United States, mainly in thermal coal, but it is also the fifth-largest coal producer in Australia, with a portfolio of 10 mines. Peabody has taken a huge earnings hit on its Australian holdings, amid dramatic falls in coal prices since the lofty highs of mid-2011.
But Mr Boyce is bullish on the future for coal exports, saying China will not adopt a carbon emissions cap, despite growing speculation that Beijing could enforce one.
Last month, economist Ross Garnaut told The Australian Financial Review that China's appetite for thermal coal may already be in decline, which could see Beijing make bolder promises to reduce carbon emissions, at little cost. Professor Garnaut, who pioneered the now-defunct carbon price in Australia, projects that China's consumption of thermal coal will fall at an average annual rate of 0.7 per cent from now to 2020.
But Mr Boyce said that though China was working to reduce its carbon intensity per unit of GDP, a cap on carbon emissions was "just not on the cards".
"Those are two completely different things," he said. "Ross Garnaut, of all people, should know that China can't grow its economy without having a continued total increase in carbon. As long as we are globally 80 per cent fossil fuels, you are going to have growth in carbon emissions. "
Mr Boyce also applauded Prime Minister Tony Abbott's support of the fossil fuels industry. "I think the PM has it exactly right, in terms of: you have got to worry about people, you have got to worry about economic activity; once you get those two parts of the equation correct, then you can make significant advances in the environment."
He pointed to the European Union, saying member countries had "decimated their economies, moving down these 10-year paths of high-renewable targets and carbon management".
And Mr Boyce was scathing of climate change advocates who argue it is the most critical issue facing the world today, pointing instead to the challenge of pulling 3.5 billion people out of poverty globally.
"I think energy poverty is the biggest environmental and human problem that we have; I don't believe that it is the changing climate," he said. "The environmental issues that are driven by global poverty far outweigh anything we might model looking at climate models for the next 50 years. And remember, that's all they are: models.
"How we expect to drive global economic activity and have a healthy micro and macro-environment on this globe when we've got that much energy poverty? I just don't understand."
Fairfax Media Management Pty Limited
Document AFNR000020140811ea8c00024
Coal Miners See Signs of Recovery as Prices Stabilize; Oversupply Has Plagued Mining Industry for Two Years
By Rhiannon Hoyle in Sydney and Biman Mukherji in Hong Kong
841 words
1 Sep 2014
The Wall Street Journal Online
WSJO
English
Copyright 2014 Dow Jones & Company, Inc. All Rights Reserved.
For two years, the world's coal miners have been plagued by a glut of the fuel that has battered prices and led to the closure of mines, straining tiny towns from Australia to South Africa reliant on their operations.
Now, some of the largest shippers are signaling the worst may be over as prices stabilize.
Coal mining executives say a string of pit shutdowns should finally kick-start the market by curbing supply, while demand from buyers such as China and India appears to be picking up. The optimism is a reversal from past months when companies warned of a sustained market surplus, although they are stopping short of tipping a sharp rebound and see any recovery as gradual.
Coal is one of the world's most important energy products and is the biggest source of electricity generation, supplying about 40% of global needs, the International Energy Agency says. For a country like Australia, which counts coal as its second largest export after iron ore, coal is an important source of jobs and revenue.
Paul Flynn, chief executive of Australia's Whitehaven Coal Ltd., says he has turned more upbeat on the market's prospects in recent months. The company, which sells coal to countries such as Japan, China and India, reported a second annual loss last week as low prices hurt revenue, but Mr. Flynn says he sees the potential for a return to profitability in the year ahead.
"We certainly feel better about the prospects for coal," Mr. Flynn told The Wall Street Journal. "It's been a very, very difficult environment, but I see signs that the oversupply situation is tightening up now, which is good."
While spot prices are yet to enjoy much of a lift, having largely flattened over the past month, miners are benefiting from the renewed enthusiasm. Whitehaven shares have rallied 37% since the start of July, while Indonesian producer PT Adaro Energy is up 12%.
Supply rose more quickly than demand over the past couple of years, as mines that were planned when the market was booming moved into production. Glencore PLC says thermal coal shipped by sea rose 22% between 2011 and 2013, outpacing demand, which rose 18%.
As a result, the price of thermal coal, which is used to generate electricity, has been trading near its lowest level in five years. Metallurgical coal, a steelmaking ingredient, is near its lowest in seven.
This has hit the balance sheets, even of diversified miners. BHP Billiton Ltd., the world's largest miner, said weaker coal prices wiped $1.5 billion off its underlying earnings last fiscal year.
Some miners have closed their most expensive pits, contributing to more than 10,000 jobs cut in Australia's coal sector. Towns that rely on coal mining for employment and spending, such as remote Moranbah in Queensland state, have seen their populations shrink and housing markets crash as workers were laid off.
But the world's biggest shipper of thermal coal, Glencore, expects demand for that fuel to start outpacing supply again from 2015, shoring up prices. "They seem to have bottomed, stabilized, [and] improved a little bit in recent periods," Glencore Chief Financial Officer Steven Kalmin said in a presentation to investors in August.
Analysts expect a rise in Indian thermal coal imports—after lower-than-usual monsoon rains led to weaker hydropower generation—to send prices higher. Citi analyst Ivan Szpakowski also forecasts a lift in Chinese industrial activity toward the end of the year, which he thinks will drive up demand.
Buyers in China and elsewhere are also looking to switch to higher-quality coal that generates lower emissions and meets environmental targets. This is a plus for Australia with its abundant reserves of high grade coal. In contrast, miners with low quality reserves or high costs could face continued challenges and be forced to cut output further, analysts say.
Production cutbacks could spark a recovery in metallurgical coal. Whitehaven estimates 20 million tons of output has been cut in the past few months alone.
Another jolt for the market has been a decision by India's Supreme Court in August to rule all coal-mining licenses distributed since 1993 illegal, raising uncertainty over supplies that could prove a positive catalyst for prices, Mr. Flynn said.
Even with all its mines in operation, India is a big buyer of foreign coal because of rising power-generation demands.
"There is an urgent need in India to add significant capacity generation in a short time frame. This generation will largely be coal-based," said Anil Sardana, managing director of Tata Power, one of India's largest integrated power companies.
Citi's Mr. Szpakowski said he recently told clients to buy Australian thermal coal futures as Indian imports were poised to increase, Chinese demand was going to rise and supply would fall in the coming months.
Dow Jones & Company, Inc.
Document WSJO000020140831ea8v002mh