Galilee mines are not economically viable - Queensland

Why are the Lieberals so hell bent on digging up a stranded asset that makes no business sense? Are they completely stupid? 

With the price of coal falling through the floor and with no foreseeable recovery in the price to a viable level, surely the self appointed masters of economic management could see this and develop new industries? But no, they stubbornly hold on to coal whilst the world ditches it (pun intended).

The size of coal reserves in the Galilee basin are enormous, and mentioned in the article. This bit is about the simple facts though. The coal industry is dying.

Daniel Morgan, global commodity analyst at UBS, sums up the problem with just two numbers. “The Newcastle benchmark is currently $74 a tonne. That price is well below what developers would need to make a return on capital. We think you need a long-term price of $110 to be viable.” 

He does not foresee a long-term price anywhere close to that. Moreover, he says, Galilee Basin coal tends to be of somewhat lesser quality than the Newcastle benchmark, meaning “it would probably command a discount in the order of 10 per cent”. 

The problem is essentially one of oversupply. “There’s a very well-supplied market for thermal coal,” says Morgan. “And the time frames the proponents are talking about [the next five years or so] – we don’t need that amount of coal … or anything close to it. 

“We’re not calling for a price recovery in the next five years that would mean that it would be anywhere close to the price required to incentivise Galilee basin coal. The economics don’t stand up.” 

Adrian Cox, of Deutsche Bank, offers this from their April commodities report: “thermal coal export growth continues to exceed demand, suggesting that prices will remain depressed.” 

Worse, the report sees growth in supply outstripping growth in demand for another five years, until 2019, and excess supply persisting beyond that. As for prices? Maybe $91 a tonne by 2018. 

Wherever you go among the market analysts, the story is essentially the same: coal prices hovering somewhere below $90 – one credible analysis firm reckons $65 – while the Galilee mines need a return of $100 or more to be viable. more