Coal news and updates

MINING and trading giant Glencore’s surprise move to shut down coal production for three weeks at some of Australia’s lowest-cost thermal coalmines is not a Rio Tinto merger ploy or even a strategic trading move.

 

It is simply that the nation’s biggest coalminer has been hit by lower Chinese prices — in part driven by tariffs on Australian coal — that it is not prepared to sell at, meaning it has little room left at its Hunter Valley stockpiles to put mined ore.

 

NSW mining and trading sources say the three-week Christmas break that Glencore surprised the market with this month has come about because of the relatively high proportion of thermal coal it sells into Chinese spot markets compared to BHP Billiton and Rio Tinto.

 

Those spot markets, in the south of China, have seen prices slump since October, when the Chinese government announced tariffs on exports as part of an increasingly protective approach to its domestic miners.

 

There have been suggestions from some analysts that the production break was a message from Glencore’s billionaire chief Ivan Glasenberg that he intends to resume his pursuit of Rio when a six-month cooling off period ends in April.

 

This comes after he previously challenged the iron ore strategies of Rio and BHP Billiton, which are flooding the market with supply, and said they should probably pull back expansions.

 

But the situation in Western Australia, where the big miners make 50 per cent iron ore margins, is different from NSW, where the best quality mines are struggling to make profits at coal prices of $US65 a tonne.

 

The cutbacks were a surprise to the market because, according to Credit Suisse, Glencore’s Australian thermal coalmines are lower cost than those of BHP or Rio, which have not cut production recently.

 

But the Chinese moves are further cutting the price of the coal Glencore sells on the Chinese markets, which Rio and BHP have less exposure to.

 

People on the ground in the Hunter Valley say Glencore’s mine stockpiles are visibly full to the brim, mainly because it has been unwilling to sell the coal into the Chinese markets at a lower price.

 

The company has been providing coal to contracted buyers but has pulled back from the spot market.

 

A strong operational year has also meant it has not had to use contingencies in place for wet weather, further filling its stockyards.

 

When Glencore announced the cuts, which are expected to result in 5 million tonnes less coal produced from Australia, it said it was a “considered management decision, given the current oversupply situation and reduces the rush to push incremental sales into an already weak pricing environment”.

 

That weak pricing is even weaker in China at the moment.

 

“The Chinese government is taking a highly protective approach for the domestic sector,” Credit Suisse said in a note to clients yesterday.

 

“We do not exclude the possibility of supporting policies on (Chinese) coal exports, in extreme difficult scenarios, all imposing negative risk to the seaborne market.”

 

 

Source: http://www.theaustralian.com.au/