Australian coal facing stiff competition from Indonesia: Report

Rising freight costs, a decline in the United States dollar and increased competition out of Indonesia is keeping pressure on Australia's coal exporters, according to industry analysts as reported by Asia Pulse

Global demand for energy coal continues to strengthen but competition in the market remained fierce, they said.

Traditional rival China may have had exports stabilise as it concentrated on supplying domestic demand, but Indonesia - with its growing output and close proximity to Asian markets - was emerging as an even bigger threat to Australian exporters, according to a study by UBS head of resources research Glyn Lawcock.

Lawcock said Australia's share of the Asian market was declining rapidly, largely as a result of this increased competition.

"Going forward, with the exiting of the Indonesian coal market by the large western companies such as BHP Billiton in 2002 and Rio Tinto on 2003, we can only expect (Indonesian) exports to increase further as the new domestic owners ramp up exports," he said.

With ocean freight rates doubling over the past 12 months, China and Indonesia's proximity to major markets was becoming more of an advantage.

More than 85 per cent of Australia' coal exports are sold into Asia with the bulk of that - 26.33 million tonnes out of 43.97 million tonnes - destined for Japan.

Energy Economic coal analyst Clyde Henderson said the skyrocketing freight rates meant Australian companies would have to reduce the coal price to remain competitive as new contracts and spot deals were made.

"To get the same delivered price to Japan they (Australian companies) have to sell coal for $US3 a tonne less than Indonesian rivals and $US5 a tonne less than Chinese coal importers," Henderson said.

Despite the heavy competition, Australian coal exports were expected to continue to rise at a compound growth rate of five per cent a year.

"The international market for energy coal has grown very, very strongly this year," Henderson said.

"Australian exports can afford to lose a certain amount of market share and still maintain growth."

But while output was increasing, coal exporters' bottomline was being hit from a number of directions.

As well as soaring freight costs, companies faced rising insurance expenses, higher demurrage charges and the impact of the declining US dollar.

"I can't over emphasize the impact of the exchange rate," Henderson said.

"It's because of this that no-one's making much money at the moment."

Rio Tinto's 75 per cent owned Coal & Allied Ltd reported a 93 per cent slump in its 2003 first half profit and warned market conditions for the second half were expected to be even tougher if the US dollar remained weak.

"The situation for coal miners may have improved on several months ago but it's still bad," Henderson said.

"We're very much in a state of flux, there's a number of variables and it's hard to see which direction it is going from here.

"Mine expansion and new mines are far more likely to take place in Indonesia or China than Australia as was the case prior to this exchange rate leap.

"Over a decade, theoretically, their production could grow to take up the slack from Australian declines.

"Meanwhile (Australian) producers are taking a wait and see attitude. They've made a few cutbacks and will be keeping an eye on the market, and the exchange rate."(*)