It has been a tough year for commodities, particularly large-volume bulk commodities, but none face as much of a challenge as coal.
Prices for both thermal coal and metallurgical coal for steelmaking have languished for the past two to three years amid a supply glut. Thermal coal prices have continued to slide, falling a monthly 3.8% in July, and are now trading at about $70 per ton, almost half its 2011 peak of $130 per ton. Metallurgical coal prices, which soared in 2010 and reached as high as $350 per ton for premium product, have slumped since, sliding to the $100 per ton mark earlier this year and have steadied at about $113 in recent weeks.
In addition, a raft of massive new mine projects, such as those underway in Mongolia, Africa and Australia, raise the prospect of large amounts of coal coming onto world markets for some years to come. And while demand continues to grow, China’s slowing economy and mounting environmental concerns together with a natural abundance of coal in India could make things even tougher for international miners of the commodity.
Mine majors keep their distance
For the world’s biggest mining companies, coal has been the “problem child” in their minerals portfolios. BHP Billiton’s answer is to bundle some of its unwanted offspring, including many coal assets, into a new $14 billion metals and mining company. The world’s largest mining company formally unveiled its demerger plan in its Aug. 18 annual profit announcement.
BHP’s Anglo-Australian rival, Rio Tinto, is also selling coal assets, starting in Mozambique, and for the past two years the company has been pursuing a cost-cutting program in its coal division.
China’s two largest producers, China Coal Energy and China Shenhua Energy, have also both announced cuts of 10% to their production schedules. So the rise in cleaner energy alternatives poses a longer term threat to coal.
Nevertheless, new mine projects are underway in Mongolia, Africa and Australia. Brazil’s Vale, one the three mining majors, is proceeding with fresh production in Mozambique and has coal mines in Australia.
On China’s doorstep is Mongolia, which has enormous coal reserves. A range of companies including Australia’s Aspire Mining’s wholly owned Ovoot Coal mine, Hong Kong conglomerate Noble Group and Mongolia’s state owned Erdenes Tavan Tolgoi are involved in new projects there. Read more….