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and even different energy sources as coal is priced out of the market for some countries. The supply response risks being overdone. This can also occur when the increase in demand eases or when the new markets have not developed as predicted, which when combined with the additional supply causes the market to tumble. Indeed prices can become depressed for a much greater time than when prices boomed. We are being told by a wide variety of commentators, including the large mining companies and even the RBA, that this commodity cycle is different. China’s transition – and eventually India’s – from a developing economy into a manufacturing one will take many years, most probably decades, and on the way will become huge consumers of raw materials.
In September 1974, when the index began, it was 16.2 points. In September 2004, 30 years latter, the index had grown to 68, a 319 per cent increase. If we take it to March 2004 the index had increased to just 46.8, a 189 per cent rise. To put this into perspective the Consumer Price Index has risen from 13.3 to 144.1 points in the same time, a 524 per cent increase. To March 2004 the CPI was up 518 per cent. Quite simply, coal prices have grown little, and have not kept up with inflation. Australian coal revenue
As economies transform they need at their very base electricity, roads, modern vehicles and in the end large cities with better accommodation to house literally millions of people as they move from villages to the cities to man ever expanding factories. China is a major coal producer. In the first quarter of 2010 its output was 751Mt (million tonnes) raising its annual capacity to 3.6Bt (billion tonnes) – considerably in excess of Australia’s output. Production should expand even more in time as coal groups merge into more efficient identities, infrastructure improves and new mines open up.
Australian coal volumes
Even so China has moved from a net exporter to a net importer in the last five years. This is because domestic production has not kept pace with the manic building of coal-fired electricity plants and steel mills, and the location of some of these new plants is removed from key coal mining areas, making sea-borne exports cheaper. It is this shift, which saw the queues of vessels outside Newcastle and along the coast of Queensland, some five to six years ago. At first the queues were blamed on inefficient loading and closures for maintenance. Export capacity had been rising only marginally each year and there were few demand pressures. Also, prior to 2004-05 prices for coal were relatively steady – and cheap. The Australian Bureau of Statistics’ deflator for coal bears this out. This is a price index derived by “deflating” the revenue received by coal exporters by the underlying volume. Changes in the index were at most 20 per cent through the year, which were often, but not always, followed by similar falls in price.
Current exports vs proposed capacity