2012 has not been auspicious for raw material miners around the globe. Sinking demand for finished steel has taken toll of the iron ore and coal demand. Simultaneously emergence of shale gas as substitute for coal in USA has led to glut of thermal coal. Much to the chagrin of miners who have been addicted to windfall profits even during the depths of recession there profits have plummeted during the Ist two quarters.
However production has been on a relentless course in anticipation of turn of fortunes which seems like mirage. Nonetheless the plummeting price levels have dented the confidence of miners coercing them to rethink on their expansionary plans and indulging in job cuts.
Flashback of latest reporting period shows the return on tonnes sold, by the big 5 suffered an average decline of more than 22%.Notably this decrepit set in before the current correction started.
Most of the miners achieved an average export FOB export value of around USD 200 per tonne (or better) in their met coal divisions. With current spot pricing for hard coking coal slumping below the USD170 per tonne FOB mark outlook gloomy. And although some companies managed to improve thermal division returns in the latest period, margins remained much thinner than in coking coal.
Thermal coal market exhibited flicker of revival with curtailed supply from Colombia (Fenoco strike) and USA. Particularly European offers have improved by USD 10 per tonne during the last 1 month. China despite setting new records by importing 13.86mt of steam coal in July this year, which was 9% higher compared to the previous month (12.75mt) and 41% up on July last year (9.83mt), has been exerting severe pressure on import offers with bids as low as USD 75-80 per tonne, CNF whilst offers are USD 90-93 per tonne ,FOB are aplenty from Australian sources. Indonesian miners have been desperately trying to prune production in bid to provide support to the ever declining prices but result are diluted with buyers bidding their time for the levels to fall further. Recent resumption of supply from Colombia after the strike 3 weeks strike was called off putting pressure on price.
However in the coking coal market the tables are turned around with drop in import with m-o-m decline of 39% at 3.93mt in July, from previous month’s record high of 6.49mt and down 3% compared to July last year (4.05mt)
Silhouetted against such nebulous horizon some significant developments during the week suggestive of extensive existing expansion projects is in for reassessment. Several companies operating in Australia including mining giants BHP Billiton, Rio Tinto and Xstrata have recently taken steps such as deferring expansion plans and cutting staff to reduce costs to deal with falling coal prices.
BHPB has responded with an unspecified delay to the previously-announced project in Queensland to lift Peak Downs output by 2.5mt per annum to about 7mt per annum.
Yancoal which is majority owned by Chinese parent company, Yanzhou Coal would review expansion plans at its seven Australian coal mines as slowing economic growth in top consumer China pressures global prices of the commodity.
Impact is particularly severe on Australian miners as they have higher costs of production than competitors in other top producing nations such as Indonesia and Colombia have been particularly hit hard by the combination of low coal prices weak demand and a strong Australian dollar.
Q4 negotiations are about to commence within a couple of week. Grapevine is ripe with plethora of possibilities as the miners as well as the buyers having thrown their gauntlet in the ring. On one hand miners are yearning to break the nix with higher settlement than the spot levels whereas on the other hand the buyers don’t seem in a hurry to expedite replenishment finished demand is depressed and supply aplenty.
Source - Strategic Research Institute
(www.coalguru.com)
