Moranbah, Queensland, where investors were onto a sure thing with an endless China boom demanding coal for their steel mills and workers were paid over $150K to drive a truck and a massive shortage of accommodation. The boom that would never end.
This blog has been calling a China hard landing and that country being in it's own bubble. What happens when you tie one bubble to another? Leverage. Leveraged gains (yay) and leveraged falls.
The Moranbah Bubble
According to this month’s API magazine, Moranbah had a 36 per cent
increase in its median price over the past 12 months, climbing to
$626,000.The median rent was $1500 per week (see this month’s May issue
for more statistics).
Boom (or is that a POP?)!
House prices in Moranbah have fallen by as much as $100,000 in the past
month and rents by as much as $800 per week, according to Real Wealth
Australia’s Ed Kogtevs.
So severe is the bubble burst, that Real Wealth Australia is now
warning investors not to buy there, after months of telling investors
that Moranbah was one of the best ‘hotspots’ in the country.
“Don’t buy, it’s too uncertain at the moment,” warns Kogtevs.
“I had three places go up for rent in the last three weeks. I’m still
getting $1800 a week but prior to Christmas I would have got about
$2300 or $2400 per week.”
Kogtevs says the reason behind the sudden rental collapse is because
BHP Billiton-Mitsubishi Alliance (BMA) is going hard on its enterprise
agreement with the unions.
The Coal industry is deep trouble.
Queensland's coal mining future drowning as exports plunge and capital programs wind back
THE coal industry has hit a brick wall with another major miner
reviewing all its expansions as exports plunge and BHP Billiton winds
back its capital program.
"At current prices, most coal mines in this state are either running at a loss or struggling to stay in the black.
"It is not a position unique to thermal because the contagion is spreading quickly among our premium coking coal operations."
Yancoal,
which owns seven coal mines in NSW and Queensland, told the ASX
yesterday that although its volumes had been maintained it was reviewing
its expansion plans and considering all options to rein in costs.
BHP Billiton has made similar comments about expansion.
Rio Tinto has announced the early closure of the Blair Athol mine and BHP's Norwich Park mine was closed this year.
Mr
Roche said the increased costs felt by Australian producers were partly
the industry's fault after the boom it experienced led to overbidding
for labour and other costs.
"The reality is that most QRC coal
members are well down the track of extensive cost reviews. Further
losses are a certainty," Mr Roche said.
But, don't worry it will bounce back.
Kogtevs adds prices might even get down to around $650,000 for houses in
a few months, so it’s probably best investors sit tight for now.
Thats a crash and the definition of 'deflation' - sitting on the sidelines awaiting a cheaper deal.
“Wait until the number of rentals drops to around 50. At the moment
there are 138 rentals available. Then we say get back into the market.
You should be buying in Moranbah, just not right now.”
Just hang in there investors, it will bounce back.
More QLD coal closures to come
However Neale said the "cumulative impact" of higher royalties and the
mining tax would hurt the expansion plans of some miners.
"That burden is such that I would think in the current climate the
majority of development projects in QLD are likely to be delayed to
varying extents," he said.
In a speech yesterday Ferguson said weakening demand could bring forward more closures and delays in the industry.
"I do not rule out further mine closures on the east coast of
Australia, especially in Queensland given these royalty increases," he
said.
More coalmine closures on cards
The near-term pressure hitting the sector was evident this week, when
BHP closed its second Bowen Basin coking coal mine in the past six
months and flagged 300 job losses. At the same time, Xstrata flagged 600
jobs losses in Queensland and NSW and the closure of one of its two
Brisbane offices.
The carbon tax and the increase in royalties on coking coal announced
by Queensland Premier Campbell Newman last week do not help.
But
they are far from the leading factors (and the minerals resource rent
tax was designed, with BHP's involvement, to capture only big profits,
so is even less a factor at current prices). The increased local
headwinds come as Queensland's coking coal, which provided almost $30bn
in revenue in 2011-12, faces growing international supply and demand
pressures.
These were evident well before June 30, when coking coal began a 32 per cent slide to leave it at $US151 a tonne yesterday.
Job losses mount to 3500 as coal outlook dims
HIGH costs and sliding prices have
caused more than 3500 mining job losses in the past six months, with a
worsening outlook for coking coal threatening to bring more cuts to the
reeling sector.
Analysts are predicting little respite for coking coalminers, with
JPMorgan tipping the steelmaking ingredient, which is the nation's
biggest export after iron ore, may stay around current price levels for
the rest of the year.
Coal town real estate crashes as commodities plummet
STEPHEN LONG: Now no property at Moranbah would fetch anywhere near $1
million. Vendors are struggling to find buyers at any price
JOHN WOOD: The real estate market's taken a complete turn from where it was last year.
STEPHEN LONG: John Wood works with Bella Exposito at Moranbah Real Estate.
JOHN WOOD: We're currently very low in sales and very little interest.
STEPHEN LONG: So what's happened to prices? Just give me a ballpark figure.
JOHN WOOD: From the highs last year it would have probably dropped $200,000.
STEPHEN LONG: Per property on average?
JOHN WOOD: Per property yeah, on average.
STEPHEN
LONG: When I was up there earlier this year, there were properties in
the newer part of town that had sold for $1 million plus. And even
three-bedroom fibros were going for very big prices, in the $600,000,
$700,000, $800,000 range.
JOHN WOOD: Yeah, that's correct. Well
we're not selling anything at the moment so it's pretty hard to give a
comparison on what you would sell that property for today.
STEPHEN LONG: So you are literally not selling anything at the moment?
JOHN WOOD: Pretty much yep, that would be correct. Maybe one or two houses a month.
STEPHEN LONG: You said an average fall of about $200,000; in percentage terms what are we looking at?
JOHN WOOD: Approximately 25 per cent.
STEPHEN LONG: And in the worst-case scenario?
JOHN WOOD: Worst case, probably 35 per cent from the peaks last year.
STEPHEN
LONG: The property price crash is running in tandem with a fall
commodity prices, and a sharp decline in rental demand as the mining
companies stop hiring workers. But don't try telling the local realtors
it's over.
Here comes the spin. No mention of China's economic malaise bubble bursting, falling demand, nothing. It will go up with magic.
JOHN WOOD: We've had these cycles before and I'm sure
that, you know, the industry's still going to be very strong for a lot
of years. So it's just a glitch in the system I suppose.
STEPHEN LONG: Good time to buy as far as you're concerned?
JOHN WOOD: Yeah, that's correct, yes.
STEPHEN LONG: I'm surprised to hear a real estate agent say that.
JOHN WOOD: (laughs) It would be surprising wouldn't it.
Here is the 30 year price history for thermal coal John. Sure there were cycles and the humungous bubble. What did you do before you became a Real Estate peddlar? Were you good at it?
30 Year Thermal Coal
