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Foxleigh owners paid 35% more for coal this year

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Foxleigh owners paid 35% more for coal this year

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AS BOWEN Basin mine owners are paid more for their coal from the start of this month, opportunity is likely to come knocking for Mackay's mining service companies.

Coking coal prices leapt from the doldrums during the second half of 2016, but a lack of clarity about how long the trend would last had many opting to "watch and wait" rather than taking action that would bank on higher prices maintaining.

But recently secured quarterly benchmark coal contracts, that span from January to March 2017, may give industry the short-term security required to make the most of the rally.

Last month Realm Resources announced its Foxleigh coal mine had increased its quarterly benchmark coal price to US$180 tonne for the March 2017 quarter, 35% up from US$133/t the quarter before.

The majority of its coal, distributed to customers in South Korea, Taiwan and Japan, was sold at this benchmark price.

It followed the news that Glencore and Nippon Steel had agreed to $US285 a tonne for premium hard coking coal during the same quarter, the highest price since the December 2011 quarter.

While these contracts were set at a level below the soaring spot price, which reached $307.20 on November 8, Resource Industry Network deputy chairman David Hartigan believed the increased confidence would provide more opportunity for Mackay-based METS sector businesses.

"If (mining) companies have confidence they are more likely to spend on things like large maintenance shut downs," Mr Hartigan said.

"That is good news for towns like Mackay, which has traditionally housed a lot of companies doing that type of work."

When times were tough he explained mining companies were more likely to delay this major maintenance work.

While he said gains like the 35% increase at the Foxleigh mine wasn't a signal of another boom, he said it signalled a return to a healthy market.

However Adept Economics economist Gene Tunny believed it was likely the price surge would falter in 2017- on Tuesday coking coal come back to US$230.50/t- as mines reopened around the world to fill the supply shortfall.

However he noted the arrival of US president-elect Donald Trump could "give the global economy a kick along which would help coal prices", through proposals to cut the corporate tax rate and focus on infrastructure.

He noted the longer term challenge would be if the US opted to increase trade barriers.

While he didn't believe mining companies would be encouraged to make additional investments on the back of the higher coal price, he said state government would certainly benefit.

But he also noted signals from state government that it didn't appear to be relying on the price climb maintaining.

A report from the state treasurer shows that in the 2016-2017 financial year it expected to reap $2.987b in coal royalties, up from $1.531b in 2015-2016.

However in 2017-2018 it expected this to fall to $2.022b and come in at $2.105b in 2018-2019.

Realm Resources did not wish to comment.