Coal producers stuck in vicious cycle with low prices

AUSTRALIA'S thermal coal industry is keeping itself in a vicious cycle as it continues to pump out coal, despite knowing that its extra supply is weighing down the all-important international prices.

For Queensland and New South Wales mines, the 71 operations producing thermal coal - used to create electricity - are trying to overcome rock bottom prices by upping the amount they export.

But according to the Bureau of Resources Energy Economics report released on Wednesday, they are also contributing to the problem.

Since smashing to record highs in 201 of more than AUD$146, prices tumbled to AUD$106 this year and are expected to hit AUD$98 in 2014.

In the past decade, new mines across Central Queensland and regional New South Wales were rushed through construction and into operation to take advantage of the once high prices.

Many are locked into "take-or-pay" contracts with rail and port companies that require mines to pay the same amount whether they export a million of tonnes in coal or let the conveyor belts run empty.

"This extra production has placed further downward pressure on thermal coal prices," the report found.

BREE suggested while demand for coal will increase internationally, this glut of coal could keep prices soft.

It will be frustrating news for the thousands of mine workers throughout Queensland and NSW who have lost their jobs as a result of mines trying to save money in a tough market.

In the past 18 months, more than 10,000 jobs have been lost from the coal industry in both states.

BREE estimates that demand from India and China, despite slowing its construction of coal-fed power plants, will help drive demand for coal beyond 2014.

Topics:  bree coal coal mining electricity resources

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