The Coal Cartel ? Why Adani’s prospects haven’t improved

In my recent piece in The Guardian, mostly about Adani, I observed

The paradoxes of Adani are mirrored in the global coal market. Despite a small increase in 2017, global coal production is below its 2013 peak. Yet prices have recovered strongly, yielding big profits to existing miners and offering a seemingly tempting prospect for new mines.

It turns out that this isn’t quite right. The benchmark Newcastle price, for low-ash coal with a heat content of 6000kcal/kg has risen strongly, to the great benefit of companies like Yancoal, Glencore and Whitehaven. It turns out, however, that this increase isn’t representative of the broader market. Prices for lower quality coal with lower heat content and higher ash content haven’t moved at all, with the result that the premium between higher and lower grades has grown dramatically.

What’s going on here? One possible explanation is that Yancoal and Glencore, who produce the majority of Australia’s high-grade coal, have engaged in successful cartel behavior. Another is that the premium reflects shifts in demand (with China and India increasingly rejecting high ash coal, while Japan continues to demand high grade coal) and supply (few new mines are opening, and this has a bigger effect on the smaller market for high grade coal).

Whatever the explanation, most analysts agree that it is more likely to be resolved by a decline in the price of high-grade coal rather than an increase in the price of low-grade coal.

Where does Adani fit into all this. Most of the discussion I’ve found focuses on the premium between 6000kcal/kg and 5500 kcal/kg. Coal extracted from the Carmichael mine would be much lower quality, below 5000 kcal/kg.

Adani on life support

I have a piece in The Guardian under the headline Adani’s rail line cut shows project is on life support but still a threat to climate, starting with the observation

The recent announcement by Adani that it will halve the costs of its rail line to the proposed Carmichael coalmine by building a shorter, narrow-gauge line raises an obvious question: if such a massive cost-saving is feasible, why didn’t Adani go that way in the first place?

I also address the broader question

If coal is doomed, why has the price recoverd

Failing upwards

I’ve been busy finishing the manuscript of my book, and dealing with policy issues as they came up, so I haven’t paid a lot of attention to the Liberal leadership saga. One thing that strikes me is that Josh Frydenberg has had exceptionally favorable coverage, apparently on the basis that he’s likable and popular. That’s fine, but if you’re going to appoint someone as Treasurer, shouldn’t a successful track record be a necessary (though not sufficient) condition? Morrison, for example, had a political success in stopping the boats (whatever the morality of the policy) and was generally seen as a successful Social Services minister (unlike his successor, who messed up the robodebt program). He didn’t impress as Treasurer, but at least his previous career justified giving him a go. And while he looks underqualified as PM, the alternatives were even worse[1].

Frydenberg has essentially had one ministerial job, covering environment and energy (though with various titles and temporary add-ons like Northern Australia). In this capacity, his big contribution was the National Energy Guarantee. It was a terrible policy, made necessary by the failure of Turnbull and Frydenberg to face down the denialists in the government. Designed to be all things to all people, it ended up being nothing to nobody. Frydenberg’s failure to secure agreement on the NEG was the proximate cause of Turnbull’s downfall as PM, and the policy was promptly abandoned the moment Morrison took over. In what possible world is this a basis for promotion?

 

fn1. Bishop was ruled out on tribal grounds. Her weakness as Treasury spokesman years ago was also held against her, even though she wasn’t obviously worse (in retrospect) than Morrison, and much better than Hockey. About Dutton, the less said the better. After that, it’s daylight.