QR NATIONAL hauls coal to the Port of Gladstone. The company’s 9,700 coal wagons moved 186m tonnes of coal last year. Capacity is due to rise to 300m tonnes by 2015, despite tonnage remaining below levels two years ago.

QR NATIONAL hauls coal to the Port of Gladstone. The company’s 9,700 coal wagons moved 186m tonnes of coal last year. Capacity is due to rise to 300m tonnes by 2015, despite tonnage remaining below levels two years ago.

Coal Transit Thrives as Miners Struggle

Issue 18, October 2012

QR National, Australia's largest rail freight company by tonnage, will press ahead with expansion plans despite weakening coal and iron ore prices, the group's chief executive told reporters last week. “It would be unwise to simply pull down the shutters,” Lance Hockridge said.

The company intends to expand into Western Australia, easing congested iron ore output from the Pilbara, whilst increasing coal capacity in Queensland 30 per cent to 300m tonnes by 2015.

The group’s fortunes have diverged increasingly from those of its coal mining customers, who have suffered from rising costs, falling prices and the strength of the Australian dollar.

On Tuesday, US-listed Peabody Energy reported a 19 per cent fall in coking coal prices in six months, whilst BHP Billiton has announced the closure of its Gregory coal mine in Queensland. Xstrata has similarly cut 6 per cent of its Australian workforce in an effort to curb costs.

Rather than lowering volume however, producers appear to be defending earnings by delaying expansion whilst increasing their existing low-cost tonnage. Peabody has offset falling prices with a 39 per cent increase in its Australian volume, whilst BHP Billiton has reported record production from its thermal coal facilities in New South Wales.

This strategy has isolated coal transit companies from the impact of lower prices. In contrast to its customers, QR National has been able to lower costs and increase its rates in the last year, denting miner's margins further. Earlier this month, it announced a share repurchase equal to 11.9 per cent of the company.

Toronto-listed Westshore Terminals, Canada's largest coal export terminal, has enjoyed similar success, with stable volumes and increased loading rates. Westshore’s share price performance, close to a record high, differs markedly to that of its largest customer, Teck Resources, which yesterday reported weakening profits on average coal price declines of $93 per tonne.

Much like QR National, Westshore Terminals has acted as a proxy for global seaborne coal, whilst protecting shareholders from rising mine costs. If coal volumes follow prices however, QR National will be left hauling oversupply.

“It would be unwise to simply pull down the shutters.”
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