OREANDA-NEWS. Australian rail firm Aurizon plans to haul 210mn-220mn t of coal in the 2015-16 financial year that started 1 July, in line with the 211mn t it hauled a year earlier, as it faces rising competition.

Aurizon's coal haulage volumes have levelled off over the past two years, reflecting slowing coal production growth in Australia coupled with a more competitive bid environment for haulage contracts, the firm's chief executive Lance Hockridge said.

Competition has increased in Queensland with the start-up of BMA Rail, a division of BHP Mitsubishi Alliance (BMA), the world's largest supplier of seaborne coking coal. BMA Rail has started using its own trains to haul coal from BMA's mines in Queensland's Bowen Basin through the Goonyella rail system to the BMA export terminal at Hay Point. BMA is following the example set by Switzerland-based mining and trading firm Glencore, which uses its own trains on the Hunter Valley rail network in New South Wales (NSW).

Mining firms can gain flexibility by operating their own trains, which prevents them from being locked into fixed volume take-or-pay contracts. This has enabled Glencore to promise a 15mn t cut to its Australian thermal coal production in 2015, even as many other coal producers have been forced to continue unprofitable mining to meet rail infrastructure agreements.

The more competitive bidding environment has allowed BMA, Glencore and other mining firms to demand more flexibility in their coal rail haulage contracts, which should allow them to close or scale back mines when they become unprofitable.

Take-or-pay contracts require producers to pay for an agreed amount of haulage, regardless of whether it is used. This has encouraged mining firms to keep producing and shipping coal, even when they are making a loss as a result of oversupply in the global market.

Aurizon, which together with its competitor Pacific National has dominated the Australian coal rail haulage market for the past two decades, said its customers are finding market conditions challenging but that the outlook is not entirely gloomy.

"Renewables will rise, coal will lose market share, but in absolute terms coal volumes will increase," Hockridge said.

Aurizon hauled 168.3mn t in Queensland in 2014-15, down from 169.9mn t in the previous financial year. It hauled 42.9mn t in neighboring NSW, up from 40.5mn t in the same comparison. The stronger performance in NSW outweighed the fall in Queensland shipments, helping Aurizon increase its total haulage volumes to 211.2mn t from 210.4mn t over the period. It had forecast it would haul 210mn-220mn t in 2014-15.

But Aurizon's contracted tonnage slipped to 230mn t in 2014-15 from a peak of 245mn t in 2011-12, despite the slight increase in actual shipments, as fewer new contracts were signed and old ones rolled off. The decline comes as mining firms are pushing their operations to ensure they use as much of their rail contracts as possible in order to avoid paying for unused haulage. This has continued to push rail contract utilisation higher, to 92pc this year from 91pc in 2014.

High-grade thermal coal prices have fallen to $60/t fob Newcastle for 6,000kcal/kg NAR coal from over $100/t in the first quarter of 2012. Premium coking coal prices have fallen to $85/t fob Australia from more than $200/t in the first half of 2012.