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Australia Possible silver lining for thermal coal from Glencore production cut

14:16  10 august  2020
14:16  10 august  2020 Source:   stockhead.com.au

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Glencore Brings the End of Thermal Coal a Step Closer. Even Glencore hasn’t been pushing thermal coal as hard as its rhetoric might sometimes suggest – and that rhetoric has Instead, we’re more likely to see death by a thousand cuts . More shareholders will divest from miners and from their

Glencore says it will not grow its coal output beyond current levels as it aims to align its business The company will instead focus on increasing production of commodities used in electric vehicles and Glencore is the world's largest exporter of thermal coal , the kind burned in power plants and a

a boat on a body of water: Possible silver lining for thermal coal from Glencore production cut © Stockhead Australia Possible silver lining for thermal coal from Glencore production cut

Australia’s largest shipper of thermal coal, Glencore, will embark on an approximate 7 million-tonne cut to its Australian coal production in 2020 to help rebalance the oversupplied global market.

Glencore’s Australian operations produced 58.1 million tonnes of coal in January-June 2020, down 15 per cent on 68.2 million tonnes in the first half of 2019, the company said in its half-year update.

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The Swiss company’s current thermal coal production capacity is 150 million tons annually, which makes it the biggest single exporter of the commodity. Glencore , for example, plans to use the capital that will be freed thanks to the capacity cap to increase its production of basic metals such as

Thermal coal mining is unlikely to become a large profit contributor for Glencore soon we think. Our visit to China’s Shanxi coal province confirms that Our meetings in Shanxi province indicated that the domestic thermal coal industry continues to cut production to improve supply and demand balance

Chief executive Ivan Glasenberg said at the company’s results presentation it was taking steps to manage its coal production in Australia with measures including temporary site and equipment shutdowns at a number of its coal operations.

“These measures will enable us to align our production levels with market demand, while providing the flexibility to ramp back up as economies recover from the effects of COVID-19,” Glencore said in a statement.

Temporary production cuts in Australia are timed for the September school holidays, it said.

Glencore’s production cut reflected the “terrible” demand situation for thermal coal in Asia, said one coal market source.

Energy markets analyst Tim Buckley, a director at pro-renewable think tank the Institute for Energy Economics and Financial Analysis (IEEFA), said the Australian coal industry was in a difficult position and has been hit by three factors.

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A Glencore spokesman noted that " Glencore is a significant coal producer in Australia and a major contributor to the economy, local and regional communities." We will also continue to invest in projects that add value to our business and align with the announced coal production cap."

Glencore move to curb Australian coal production highlights a growing tactical split with miners of another commodity—iron ore—in tackling 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

Firstly, a normal cyclical market downturn. Secondly, the COVID-19 pandemic which has caused demand destruction for coal. Thirdly, a long-term structural decline as Asian economies pivot to non-fossil fuel technologies for power generation.

“Southeast Asia is pivoting to domestic low cost renewable energy [for reasons of energy security] as they are worried about relying on costly imported fossil fuels such as oil, gas and coal,” he said.

India last month was inundated with bids from global capital for a solar power tender costing half as much as a new coal-fired power plant, he added.

Australian thermal coal is also competing fiercely with liquefied natural gas in electricity markets.

Global thermal coal demand declined by 8.5 per cent year on year in the 2020 first half, said Glencore in its update.

Coal demand in Pacific markets was 4.5 per cent lower and in Atlantic markets 34 per cent lower, “as low-priced LNG in Europe continued to displace coal for power generation,” said the company.

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A Glencore spokesman noted that " Glencore is a significant coal producer in Australia and a major contributor to the economy, local and regional communities." We will also continue to invest in projects that add value to our business and align with the announced coal production cap."

• The Agricultural products business segment, operated through Glencore Agri, focuses on grains • Product -related: where it is possible to exploit the blending or multi-use characteristics of the • the Rolleston open cut mine. Production at Newlands underground mine finished in the first half of 2016

Newcastle thermal coal benchmark prices fell to $US52 per tonne ($72.58/tonne) at the end of June, down 24 per cent since January.

Glencore estimates that 50 per cent of global thermal coal production is cashflow negative at current prices, “requiring further supply cuts through 2020 to return the market to balance”, it stated in its update.

ASX coal miners could benefit from cut

Glencore’s production cut could throw a lifeline to several ASX coal miners that have been struggling with low coal prices as a result of falling electricity demand in Asia from the COVID-19 pandemic.

The production reduction means other coal miners can potentially postpone any action of their own.

ASX-listed coal miners include, New Hope Corporation (ASX: NHC) 80 per cent owner of the Bengalla mine, TerraComm (ASX: TER) operator of the 2 million tonne per annum Blair Athol mine in Queensland, Whitehaven Coal (ASX: WHC) with its flagship Maules Creek mine. There is also Isaac Plains mine operator Stanmore Coal (ASX:SMR).

Yancoal Australia (ASX: YAL). a partner with Glencore in the giant Hunter Valley Operations coal mine in NSW actually increased its attributable coal production 12 per cent to 18.4 million tonnes in the January-June period.

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Glencore will continue to operate its coal mines, which are largely based in Australia, for at least another 15 years — or around the “In that regard, capping coal production is significant because prices could remain high amid tighter supplies. Glencore is chasing value over volume,” Sharma said.

Glencore , the world’s biggest exporter of thermal coal , has budgeted billion to invest on fossil “We see scope for material cuts to this guidance should commodity prices remain depressed Initially analyst said Glencore could take advantage of falling share prices in the oil sector to do further deals.

Glencore’s coal production on the slide

Glencore forecast in July that its coal production will be around 111 million to 117 million tonnes in the 2020, based on targeted volume reductions in Australia and Colombia in the second half of the year.

This is down from Glencore’s 129 million to 135 million tonnes of coal production in 2019.

The miner has already reduced production at its Colombian coal operations, reducing its attributable output from its 33.3 per cent owned Cerrejon mine by 1.5 to 2 million tonnes, and cutting production at its Prodeco mine by 3.5 million tonnes, in the 2020 half year.

Glencore said in February 2019 it was capping its production of thermal and metallurgical coal at then prevailing levels of around 150 million tonnes per annum, as it repositions capital investment to commodities used in low carbon emission technologies. The company is investing in a new, replacement coal mine in Queensland.

Coal haulage volumes steady for Aurizon

Meanwhile, Australian rail company Aurizon (ASX: AZJ) is forecasting flat haulage volumes for coal in the 2021 financial year of 210 to 220 million tonnes “based on the current view of COVID-19 impact on steel demand”.

“The coal business delivered 214 million tonnes of coal for customers during financial year 2020, which is broadly in line with financial year 2019,” said the company in an update.

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The company said in its results presentation for the 2020 financial year that COVID-19 has had a “limited impact” on exports of Australian metallurgical and thermal coal.

Volumes for met coal are down 9 per cent in the January-June period, and thermal coal shipments are flat, Aurizon said.

Aurizon had several wins for new coal haulage business in the 2020 financial year including from Peabody in NSW and Queensland, Coronado for its Curragh mine, and Bluescope in the Illawarra coal region of NSW.

The post Possible silver lining for thermal coal from Glencore production cut appeared first on Stockhead.


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