Mining car dumper system equipment is a special equipment for turning unloading railway gondola cars bulk materials, high work efficiency, and good environmental protection performance. Dumper systems is composed by the tippler, heavy car shunting locomotive, empty vehicle shunting machine, traverser, wheel gripper comprising such a device.
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However, in a competitive industry such as coal mining, prices do not disconnect from costs for long and, in the most recent edition of CRUs Metallurgical Coal Market Outlook, we discuss when this re-connection will happen. Equally, while changes to costs that occur now will have little impact on the bottom line of producers in the short-term, they will affect decisions around future supply and, ultimately, where metallurgical coal prices settle under more steady-state conditions.
This note sets out an analysis of the impact of different assumptions around the Renminbi exchange rate and labour cost inflation in China and shows that these factors alone could have a significant influence on medium- and long-term price levels.
Volatile Chinese production costsIn 2017, certain major assets are likely to be divested and decisions around new projects will be made, although the volatility in prices makes reaching an agreement on valuations and justifying investments very difficult. However, CRU strongly believes that an understanding of future changes to costs in different regions can provide a basis for understanding where steady-state, long-term prices will settle and this makes reaching important, difficult decisions on mines and projects more feasible. As such, during the research process for the update to CRUs Metallurgical Coal Cost Model in May, a number of interesting insights were gained that we believe will be useful to those trying to understand the trajectory of metallurgical coal prices in the coming years (e.g. the cost impact of Cyclone Debbie, breakeven prices of mines that are re-opening and Economic Costs of new projects) and this short note highlights one of the more important findings.
CRU has written at length about the impact that Chinese supply-side policy is having on the coal market and we will not repeat this analysis here. However, as the last year or so has clearly demonstrated, the Chinese government has both the will and means to improve the structure and profitability of its coal sector. But this is no short-term task and, given the extremely high levels of debt in the coal sector (e.g. debt of the top 7 coal producers in Shanxi has reached RMB1.3 trillion, surpassing GDP of the entire province), we believe that the Chinese government will need to continue to manage supply in the medium- and long-term, such that mining operations are able to generate sufficient levels of cash to support restructuring of the sector. Of course, profitability is determined by price levels and costs and if, like us, you expect prices to fluctuate around the level of the marginal cost producers in the Chinese coal sector, how costs change in China will be critical.
Much like the rest of the coal industry, Chinese mine owners responded to the relentless price decline from 2012-2016 H1 by doing everything they could to cut costs. The accompanying chart demonstrates that, in local currency-terms, the Chinese sector was as successful as miners in other countries in this regard. However, methods to achieve these results in China were more extreme than in other countries where workers rights of employment and safety play a larger role:
Around the time of such action, international prices continued to decline and a number of banks and other forecasters slashed long-term, hard coking coal price projections to levels well below $100 /t and this implied knowingly or otherwise that the Chinese coal sector would either have to continue to cut costs significantly, and perhaps unsustainably, or that losses would mount. However, events over the last year reinforce CRUs enduring view that neither of these outcomes are likely in the medium-term.
Indeed, our recent research shows that much of the cost-cutting that took place in China while prices were falling was, very definitely, unsustainable and, since prices have rallied, costs have risen once again (n.b. albeit from an artificially low base). Analysts in CRUs Beijing office have found that unit costs at operations producing largely coking coal have increased by 30-70% in local currency-terms from the low point just prior to the implementation of the 276 working days policy in April 2016. There are a number of reasons behind this upsurge in costs:
Of course, many of these measures are only required because of the extent of the previous pullback in spending, therefore, we believe the full magnitude of the current uplift in costs will also be temporary. Moreover, as international prices revert towards more sustainable levels (i.e. relative to costs), cost control will become an important theme in the industry once again. Having spoken to a number of players across the sector, we have taken these factors into account in our analysis and the accompanying chart shows our calendar year estimates for metallurgical coal cash costs, ex-mine basis, in China up to 2017. Considering the additional costs and a number of other variables (e.g. transportation, coal qualities, freight, exchange rate etc.) we estimate that the average cost level in China in 2017, equivalent to the hard coking coal, FOB Australia benchmark, will be $113 /t.
CRUs cost service provides access to our cost model, which contains CRUs base case forecasts for industry costs in all regions, including China. Moreover, it is a tool that allows users to flex inputs that are key to determining future metallurgical coal production costs, most pertinently:
In the following chart, we have plotted a 2025 metallurgical coal cost curve for just one Chinese province, Hebei (n.b. a province with relatively high Business Costs compared with China as a whole), under different assumptions for the Renminbi and wage inflation.
As demonstrated above, variables such as exchange rate and labour inflation have a significant influence on the cost base of the Chinese and, therefore, global metallurgical coal cost curve, particularly the upper end of the curve that is important for price-setting. As such, CRUs Metallurgical Coal Cost Model provides an extremely useful tool for forecasting medium- and long-term prices under a range of different scenarios.
ConclusionAs mentioned previously, cost metrics are not of huge importance to the performance of the industry today it is clear to all involved that Chinese coal miners are making good money however, how they develop will be critical to the level around which coal prices will fluctuate in the medium- and long-term. In turn, this will have a direct impact on the real value of the numerous minesthat are likely to change hands outside China during 2017.
The CRU Coal team sets the standard for providing in-depth market analysis, forecasts, price assessments and cost analysis for the global coal industry.
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Increase the speed and accuracy of you cost estimates. The Coal Cost Guide is designed for engineers, geologists, and financial analysts who require up-to-date starting and operating costs for mining projects.
One characteristic is common to all successful coal mining companies; their decisions are based on the best, most accurate cost information available. To get that information, many of them turn to Costmines Mining Cost Service and the Coal Cost Guide.
The Coal Cost Guide is developed from ongoing surveys of a network of mining companies, labor unions, tax specialists, utilities, and suppliers, assuring you complete, detailed information that reflects current, actual conditions. Join the many successful companies, mining schools, and government agencies throughout the United States, Canada, and around the world who rely on Costmine to help them with:
This manual, available in both digital and print versions, places data for all pertinent cost estimating areas at your fingertips. It contains over 600 pages of easy-to-find, indexed information to make your cost studies faster and easier. Your guide will provide you with in-depth information on the following topics:
Historical and current perspectives of coal production by coal rank and geography. The Guide also summarizes distribution, resources and technical data for coal producing areas in Canada, the United States and Mexico.
Current and historical inflation indexes for key mining categories, plus our valuable Coal MCS Indexes. Also included are current and historic price tabulations according to coal rank and coal region, ensuring you have accurate and reliable commodity prices for your cost estimates. You can track the effects of inflation and keep your feasibility studies up to date.
Current estimators prices for 3,000 mine and mill equipment items, from 2 hp pumps to 3,400 hp trucks, drills, locomotives, ventilation equipment, crushing and grinding equipment, pumps, motors, continuous miners and more. You can determine capital costs for every item on your equipment list in a matter of minutes! Convenient tables focus on equipment size and productivity, avoiding the confusion of model names and numbers.
Clear explanations and current Canadian and U.S. federal, state and provincial taxes and how they apply to your proposed project. All taxes are covered including income, sales, property and all other mining-specific taxes in all coal producing states or provinces.
Current industrial electric power and natural gas rate schedules as applied to mining throughout the United States and Canada, so you can quickly determine your projects utility costs from actual rate information.