By MoneyMorning.com.au
QR National [ASX: QRN] is the largest freight company in Australia, based on the tonnage carried. Last year the company hauled over 260 million tonnes of coal from mine to port.
So it was always going to be big news when the company went public. It was the second biggest public listing in Australia. Telstra was the biggest.
CEO of QR National, Lance Hockridge said in 2010, ‘Warren Buffett said when he bought out Burlington Northern that that was a bet on the future of the American economy. I’d say this is going to be a bet on the future of the Australian economy.’
Hockridge is ‘betting’ Australia’s economic future is commodity driven. And he knows someone will have to cart the stuff around.
Did the bet pay off?
Towards the end of last year, coal prices were moving higher. Even flooding and a cyclone didn’t cause the spot price to drop too low.
And now QR is ensuring it remains one of the largest haulers of coal for the future.
Just two weeks ago, QR National announced, it – along with several coal companies – will build a $900 million rail line to a proposed coal-export terminal, Wiggins Island at Gladstone. Work is set to begin in 2012.
The increased rail infrastructure will see the company carry an extra 27 million tonnes of coal per year. A 30% increase on what it carries now.
Which is just as well… because, in the short term, the debt problems in Europe and the US could cause the spot coal price to take a bit of a hit.
The debt problems dominating the Eurozone will have a flow-on effect on demand of coal.
How? It works like this…
Most of our coal goes to Northern Asia.
Manufacturers like China, Taiwan and Japan rely on Europe and America to buy their goods. The bigger the drop in orders from the States and the Eurozone, the bigger the drop will be in the price of Aussie commodities.
In the short term, National Australia Bank (NAB) is warning of a sharp drop in coal prices.
‘NAB said coal and iron ore price had been resilient so far, but would drop by 20% by next July, citing risks that extra supply of iron ore and coal would outpace growth in demand,’ reported the Age.
As the crisis unfolds, the value of commodities like coal will decline. Could the price of thermal coal slip back to the post-GFC levels of USD$60 per tonne?
That would mean nearly a 50% fall.
But ANZ forecast in its “Earth, Fire, Wind and Water” commodities report that, in the long term, exports of our thermal and metallurgical coal will reach $75 billion dollars by 2015. Up from $55 billion in 2009.
The ANZ team projects combined coal exports could total $99 billion by 2030.
Throwing almost one billion dollars at rail infrastructure investment is a long term commitment.
A short term price decline in coal prices won’t stop Q R National from expanding.
If ANZ is right about the future growth of coal, QR National are positioning themselves to profit from long term growth.
Shae Smith
Editor, Money Morning
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