CANBERRA: Glencore PLC’s have moved to curb Australian coal production by around 15% highlights a growing tactical split with miners of another commodity–iron ore–in tackling a prolonged period of low prices.
On Friday, Glencore cited subdued demand in its decision to reduce exports of mostly thermal coal from mines across two coastal Australian states by 15 million metric tons this year and defer new projects. The commodity miner and trader follows rivals such as Peabody Energy Corp. in cutting output to counter the pain from coal prices which are hovering near multiyear lows.
Coal consumption in China–the world’s biggest user–fell last year, the first time in 14 years, confirming a trend that has become one of the heaviest weights on the global coal market. Tumbling oil and gas prices also play a part in crimping demand, as some users can switch fuels when they cheapen.
In contrast, the world’s biggest iron-ore producers are still raising output of the steelmaking commodity even though prices tumbled by roughly half last year. That reflects a difference in the profits that companies can make on each commodity, with many miners barely breaking even on coal output while making good money on iron ore.
Earlier this week, BHP Billiton said its earnings from coal production fell by around two-thirds to US$178 million in the six months through December, accounting for only 2% of its group profit. This was even though the coal unit’s performance was inflated by US$156 million thanks to the U.S. dollar’s strength against its counterpart in Australia, where BHP has most of its coal mines.
Rio Tinto, which owns pits in Australia adjacent to Glencore’s operations, said its energy business–mostly coal mining–swung to a loss last year. On Friday, Rio Tinto said its energy chief Harry Kenyon-Slaney had departed as part of a restructuring that will see the unit combined with the company’s copper business. Some analysts think the overhaul could be a precursor to Rio Tinto putting the coal assets up for sale.
“Production initiatives will occur at a number of sites,” Glencore said in a statement. “These include some underground roster changes, the scaling back of some open pit mining activities and revisions to the product portfolio with the objective of tailoring both volumes and qualities to better match current market demand.” Australia is the world’s second-largest exporter of thermal coal burned to generate electricity, behind Indonesia, and it is the biggest shipper of coking coal used to make steel. Glencore exported nearly 100 million tons of coal last year, representing around a quarter of Australia’s total shipments.
