Anglo American PLC plans to reduce coking coal output in the coming months as it reviews existing operations and projects in the face of weak prices and high costs, the miner"s coking coal chief said Wednesday as he warned industry-wide cuts will continue to deepen. Coal producers have raised concerns over the profitability of the sector in recent months as prices have slumped, particularly in Australia where resources minister Martin Ferguson last week said the nation risks missing out on billions of dollars of new projects thanks to high costs. "We are going through a planning process where we will adjust to the market conditions and, in the short term, we will cut back," the chief executive of Anglo"s coking coal business Seamus French said in an interview. Anglo American is the world"s third largest producer of coking coal, or metallurgical coal, which is primarily used for steel-making. It operate five coking coal mines in Australia"s Queensland state, and one in New South Wales.
"It"s times like these that really are the right [opportunity] to reevaluate things," Mr. French added, saying the market had become over supplied after strong prices at the start of 2011 encouraged miners to ramp up production. Mining companies have been tightening their focus on costs and reconsidering investment plans as demand from China, a top consumer of many commodities, has softened with a slowing economy, sending prices for industrial commodities to multi-year lows. The spot price of coking coal, Australia"s second-largest export, has fallen by half over the past 12 months as Chinese steel demand has eased. Producers in Australia"s coal-rich Queensland region are also facing an increased levy on the sale of coal, which miners have warned will put further pressure on the profitability of their operations. Earlier this month, Xstrata PLC, the world"s largest sea-borne exporter of thermal coal, said it would cut around 600 jobs in a restructure of its Australian operations, while BHP Billiton Ltd. also announced it would cease production at its Gregory metallurgical coal mine in Queensland state and keep its other assets under review.
Mr. French said cuts would be made on a case-by-case basis across it operations, adding that any decisions are likely to come over the next few months. He said he also expects to see his peers not only cutting back production, but delaying near-term projects through the final quarter of 2012 and the first half of next year. "We are in a situation where the high prices of last year encouraged a lot of new production onto the market. In a period of oversupply it is a natural adjustment for producers to start to trim back," he said. Still, by mid-2013 cuts to output and a recovery in Chinese consumption should help move market supply and demand back into balance and provide a lift to prices, Mr. French said. The Bureau of Resources and Energy Economics, the Australian government"s forecaster for mineral and energy production and exports, predicts the value of Australia"s mineral and energy exports will fall 2% in the current financial year to 189 billion Australian dollars (US$196 billion), a sharp change to its forecast three months ago of A$209 billion.
Anglo American won"t cancel any growth projects altogether, though, and remains committed to tripling coking coal production by 2020, Mr. French told The Wall Street Journal. "You can"t completely throw overboard long-term plans," he said. Anglo American reported worse-than-expected earnings in July and said it would reduce capital spending this year by more than 20%, or around US$1.6 billion, on the uncertain global economic outlook. While no further details had been provided on expenditure cuts at the time, group Chief Executive Cynthia Carroll said coal developments accounted for about 20% of the company"s project pipeline. "Our challenge is finding a way to spend less money to develop these projects," Mr. French said. The unit"s Callide thermal coal mine near Biloela in Central Queensland meanwhile also remains up for sale, he said. In late 2010, Mr. French"s division announced its strategy would focus on growing its coking coal business, rather than thermal coal, which is used in power generation.
Source: MarketWatch