Coal mining joint venture BHP-Mitsubishi Alliance (BMA) is preparing to offer a new blend of its premium low-volatile coking coal brands to give it more operational flexibility and increase spot cargo availability.
The new brand will be called BMA PLV, or premium low-vol, and is a blend of BMA's products from the Caval Ridge, Peak Downs and Saraji operations in the Bowen Basin in Queensland, Australia.
It has been several years since BMA last released a blended brand, Peak Downs North, into the market. The latest blend targets the premium low-vol market rather than the mid-vol segment. The aim is to reduce the dependence of the company and its customers on individual mines for deliveries. Production and logistical issues have at times limited spot availability of some of the most liquid brands in the spot market. The sourcing of a product from different blends across the Caval Ridge, Peak Downs and Saraji operations is expected to alleviate potential bottlenecking of mine-specific operations.
"Caval Ridge products often run into problems, so a blend might be helpful to keep supply flexible," a Japanese trader said. "From the seller's perspective, such blends are good because it allows them to control the quality of their product."
Most of the market volatility over the past year was caused by logistical problems unrelated to any single mining firm, but mine disruptions lessened the market's supply cushion when those problems arose. Coal railways across Queensland were disrupted by flooding after Cyclone Debbie in April last year, while export shipments from the Dalrymple Bay and Hay Point coal terminals were delayed by heavy vessel congestion in November and December.
The Argus assessment for premium hard coking coal jumped by 47pc from the beginning of November to a peak of $260.50/t fob Australia in late December, before easing to $230/t fob Australia today.
BMA will initially blend the new product at port, but a planned conveyor belt between Caval Ridge and Peak Downs will allow blending activity to take place closer to the mine heads in coming years.
"Personally I would still prefer to get the old brands from BHP, unless there is a substantial cost advantage to buying a blend," an Indian buyer said. "But in a high demand environment they can probably get away with this. PLV is still a good coal."
This sentiment was echoed by Chinese participants, who noted BHP is the main supplier of premium hard coking coal in the market. "I can foresee some resistance from the buyers at least initially, but they will eventually accept and adapt to it because they do not really have other choices," a Chinese trader said.
Most of the BMA PLV coal characteristics lie between typical specifications for Saraji and Peak Downs, with CSR more closely resembling the former and fluidity the latter. On a theoretical basis, the blend should achieve a premium to both Saraji and the Argus index price in fixed-price spot trade, although historically new blends have performed below theoretical value when they are introduced because of buyer unfamiliarity.
BHP has lowered its coking coal production guidance by 3mn t to 41mn-43mn t from 44mn-46mn t for the July 2017 to June 2018 financial year because of technical problems at its Goonyella and Blackwater mines in Queensland. Goonyella produced 2.74mn t in October-December, down from 4.41mn t a year earlier and 3.28mn t in July-October.
BHP has looked to compensate for those issues by ramping up production at its Caval Ridge and Saraji mines, among others.
BMA's willingness to expand production and add a conveyor belt follows higher price outlooks for coking coal. The Argus average price for premium hard coking coal was $187.99/t fob Australia in 2017, 32pc higher than in 2016.
