BHP cuts Australian coking coal investment
Australian resources firm BHP has cut all investment in its Queensland coking coal business, in response to the state government's coal royalty rate increase and China's continuing ban on imports of Australian coal.
"We are not going to deploy any major capital into the Queensland coal business following the change in the Queensland royalties," BHP chief executive Mike Henry told analysts as he announced an increase in annual group profit for continuing operations to $22.4bn from $13.7bn a year earlier.
This is in contrast to the firm's move to increase iron ore production to over 300mn t and examine options to go to 330mn t/yr in Western Australia, sending a clear message that Australian states with more stable royalty regimes get rewarded with more investment. The Queensland government introduced new upper tiers to its coal royalty regime from higher prices from 1 July, including a top rate of 40pc on the portion that is sold above A$300/t ($211/t).
Argus last assessed the premium hard low-volatile coking coal price at $244.65/t fob Australia on 15 August, down from $664/t on 15 March. Both hard mid-volatile coking coal and pulverised coal injection grade coal are also attracting this top 40pc royalty rate at current spot prices.
BHP set an [unambitious production guidance for its BHP Mitsubishi Alliance (BMA) joint venture](BMA) of 58mn-64mn t in 2022-23. It declined to give any guidance on medium-term production or costs on 16 August, blaming the policies of Queensland and Beijing. It also singled out the royalty hike as leading it to withdraw its sustaining capital expenditure guidance for its coking coal operations.
BHP expects production costs to rise to $90-100/t in the year to 30 June 2023 from $89.64/t in 2021-22 and $82.64/t in 2020-21. It is starting to see some signs of inflation easing, particularly from lower diesel costs.
The decision not to invest in BMA came despite Henry insisting that the long-term demand for its high-grade coking coal remains robust, as the transition to the economic production of green steel using hydrogen instead of coking coal looks decades away. While BHP is investing in green steel technology it is also working with its customers to reduce emissions in the shorter term by moving to high-grade hard coking coal from lower grade metallurgical coal.
This drive towards higher grade coking coal informed BHP's sale of its 80pc interest in lower grade BHP Mitsui Coal to Australian producer Stanmore, Henry added.
BHP's 50pc stake in BMA contributed earnings before interest and tax (ebit) of $5.71bn in 2021-22 compared with a loss of $30mn in 2020-21, largely on higher received prices. Coal, including New South Wales Energy Coal, was the second-largest contributor to BHP's ebit in 2021-22 behind iron ore but ahead of copper and compared with a loss from its unallocated operations that include the growth assets of nickel and potash.
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Peabody maintains outlook despite weaker 1Q
Peabody maintains outlook despite weaker 1Q
New York, 2 May (Argus) — US coal producer Peabody Energy still expects to produce and sell thermal coal at or slightly below 2023 levels this year despite missing its internal sales target last quarter. The company today maintained its outlook of shipping 80mn-87mn short tons (72.6mn-78.9mn metric tonnes) of Powder River basin (PRB) coal this year and 14.5mn-15.5mn st of other US thermal coal. Peabody shipped 87.2mn st of PRB coal last year and 16.2mn st of other US thermal coal. Peabody's first quarter 2024 PRB volumes dropped to 18.7mn st — the lowest in almost four years — from 22mn st in January-March 2023 because of a warmer-than-normal winter and low natural gas prices . But the company is expecting better market conditions over the coming months. "We have already seen an uptick in some nominations for May," Peabody's chief executive officer Jim Grech said. "It looks like there is recovery starting to occur in the PRB." Grech said that the recent nominations were a little stronger than what company executives had been expecting, and Peabody is getting some early indications that the trend may continue into June. He also said that over 20 power plants have announced delays and retirement dates, given projected load growth in the US thermal market, which could support medium- to longer-term coal demand. The company has 85mn st of PRB coal under contract and priced to ship this year at an average $13.70/st. It has also 15.2mn st of other US thermal coal under contract at an average price of $54.20/st. This quarter, PRB shipments should be around 15.5mn st and have an average price of $13.80/st and other US thermal coal sales should be 3.8mn st at an average price of $54.80/st, compared with 18.9mn st and 3.8mn st in the same period of last year. The company shipped 3.2mn st of other thermal coal last quarter, down from 4.5mn st a year earlier. But it recently signed new contracts to ship 1.8mn st of this type of coal, which will support sales this quarter and in the back half of 2024. Peabody also is working with the National Mining Association and America's Power to prepare lawsuits against the Environmental Protection Agency (EPA) over the agency's newly finalized suite of emissions, effluent and coal ash rules. The agency has "overstepped" its authority and threatens grid reliability at a time of increased energy demand, the producer said. But Grech said that the new rules finalized by EPA last week are not expected to have any near-term impact on US generation mix, and opposition to EPA's new rules "puts in doubt" the impact that these rules may have in the longer-term. First quarter sales at the company's other coal business segments came in as expected. Peabody's metallurgical coal shipments inched up to 1.4mn st from 1.3mn st a year earlier, and its Australian thermal coal shipments increased to 4mn st in the first quarter of 2024 from 3.6mn st a year prior. By Elena Vasilyeva Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Canadian rail workers vote to launch strike: Correction
Canadian rail workers vote to launch strike: Correction
Corrects movement of grain loadings from a year earlier in final paragraph. Washington, 2 May (Argus) — Workers at the two major Canadian railroads could go on strike as soon as 22 May now that members of the Teamsters Canada Rail Conference (TCRC) have authorized a strike, potentially causing widespread disruption to shipments of commodities such as crude, coal and grain. A strike could disrupt rail traffic not only in Canada but also in the US and Mexico because trains would not be able to leave, nor could shipments enter into Canada. This labor action could be far more impactful than recent strikes because it would affect Canadian National (CN) and Canadian Pacific Kansas City (CPKC) at the same time. Union members at Canadian railroads have gone on strike individually in the past, which has left one of the two carriers to continue operating and handle some of their competitor's freight. But TCRC members completed a vote yesterday about whether to initiate a strike action at each carrier. The union represents about 9,300 workers employed at the two railroads. Roughly 98pc of union members that participated voted in favor of a strike beginning as early as 22 May, the union said. The union said talks are at an impasse. "After six months of negotiations with both companies, we are no closer to reaching a settlement than when we first began, TCRC president Paul Boucher said. Boucher warned that "a simultaneous work stoppage at both CN and CPKC would disrupt supply chains on a scale Canada has likely never experienced." He added that the union does not want to provoke a rail crisis and wants to avoid a work stoppage. The union has argued that the railroads' proposals would harm safety practices. It has also sought an improved work-life balance. But CN and CPKC said the union continues to reject their proposals. CPKC "is committed to negotiating in good faith and responding to our employees' desire for higher pay and improved work-life balance, while respecting the best interests of all our railroaders, their families, our customers, and the North American economy." CN said it wants a contract that addresses the work life balance and productivity, benefiting the company and employees. But even when CN "proposed a solution that would not touch duty-rest rules, the union has rejected it," the railroad said. Canadian commodity volume has fallen this year with only rail shipments of chemicals, petroleum and petroleum products, and non-metallic minerals rising, Association of American Railroads (AAR) data show. Volume data includes cars loaded in the US by Canadian carriers. Coal traffic dropped by 11pc during the 17 weeks ended on 27 April compared with a year earlier, AAR data show. Loadings of motor vehicles and parts have fallen by 5.2pc. CN and CPKC grain loadings fell by 4.3pc from a year earlier, while shipment of farm products and food fell by 9.3pc. By Abby Caplan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Japan's trading firms see metals prices cutting profits
Japan's trading firms see metals prices cutting profits
Tokyo, 2 May (Argus) — Major Japanese trading houses are expecting lower profits from their metals businesses during the April 2024-March 2025 fiscal year, mostly because of lower prices of commodities such as iron ore and coking coal . Japanese trading house Mitsui forecast profits for its metal and natural resource business falling by 14pc on the year to ¥290bn ($1.87bn) during 2024-25, primarily because of lower iron ore prices. Mitsui plans to cut iron ore output by 0.3pc on the year to 60.9mn t at its mining projects where the company owns production ri ghts or a production stake during 2024-25 . This includes the joint venture project Robe River in Australia with Australian iron ore producer Rio Tinto. Japanese trading house Sojitz also expects profits from its metal and natural resource business to decline to ¥35bn, down by 20pc on the year, mostly because of a bearish coking coal market. The company said its overall coal business can cut production costs during 2024-25, partly because it plans larger-scale output at the Gregory Crinum coking coal mine in Australia, without disclosing further details. But Sojitz said it cannot generate higher profits because of lower coking coal prices. The trading house expects the average coking coal price to fall to $230/t during 2024-25, according to the company's chief financial officer Makoto Shibuya, down by $57/t from a year earlier. The company reiterated that the price is not necessarily their selling price. Sumitomo expects profits from its natural resource business would remain flat at ¥72bn on the year, mostly as its nickel production in Madagascar recovers from the output cuts in 2023 , with an aim to produce 19,000t of nickel during 2024-25, up by 9.8pc on the year. A rebound in nickel production could offset possible losses from coal and coking coal prices falling to $266/t and $133/t respectively in the ordinary market, down by $21 and $9, according to the trading house. Sumitomo plans to increase coking coal production by 9.1pc to 1.2mn t but reduce coal output by 4.8pc to 4mn t during 2024-25. By Yusuke Maekawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
US southbound barge demand falls off earlier than usual
US southbound barge demand falls off earlier than usual
Houston, 1 May (Argus) — Southbound barge rates in the US have fallen on unseasonably low demand because of increased competition in the international grain market. Rates for voyages down river have deteriorated to "unsustainable" levels, said American Commercial Barge Line. Southbound rates declined in April to an average tariff of 284pc across all rivers this April, according to the US Department of Agriculture (USDA), which is below breakeven levels for many barge carriers. Rates typically do not fall below a 300pc tariff until May or June. Southbound freight values for May are expected to hold steady or move lower, said sources this week. Southbound activity has increased recently because of the low rates, but not enough to push prices up. The US has already sold 84pc of its forecast corn exports and 89pc of forecast soybean exports with only five months left until the end of the corn and soybean marketing year, according to the USDA. US corn and soybean prices have come down since the beginning of the year in order to stay competitive with other origins. The USDA lowered its forecast for US soybean exports by 545,000t in its April report as soybeans from Brazil and Argentina were more competitively priced. US farmers are holding onto more of their harvest from last year because of low crop prices, curbing exports. Prompt CBOT corn futures averaged $435/bushel in April, down 34pc from April 2023. Weak southbound demand could last until fall when the US enters harvest season and exports ramp up southbound barge demand. Major agriculture-producing countries such as Argentina and Brazil are expected to export their grain harvest before the US. Brazil has finished planting corn on time . unlike last year. The US may face less competition from Brazil in the fall as a result. Carriers are tying up barges earlier than usual to avoid losses on southbound barge voyages. Carriers that have already parked their barges will take their time re-entering the market unless tariffs become profitable again. The carriers who remain on the river will gain more southbound market share and possibly more northbound spot interest. By Meghan Yoyotte and Eduardo Gonzalez Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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