Glencore to cut Australian coal production
Switzerland-based trading and mining firm Glencore will close most of its Australian coal mines for 2-3 weeks in September-October to meet its guidance for 2020, which it has revised down by 18mn t to 111mn-117mn t because of weaker demand in the Covid-19 economic environment.
The firm expects to take around 7mn t of production out of its Australian operations through the temporary closures, with the remainder coming from the continuing closure of its Prodeco mine in Colombia.
The closures will affect most of Glencore's operations in New South Wales (NSW), including its 10mn t/yr Hunter Valley Operations (HVO) joint venture with Chinese firm Yancoal and its 3.5mn t/yr Collinsville and 5.5mn t/yr Newlands mines in Queensland. Its 13mn t/yr Rolleston mine was already closed for two weeks earlier this year and will not be included in the September-October closures.
The mines will close over the Australian school holidays, with workers asked to take leave. The firm has opted for this rather than longer term mine closures to allow it to retain its workforce and be able to rebound quickly if the coal market firms. It also allows it to meet more of its take-or-pay obligations under infrastructure contracts, reducing the cost of cutting production.
The HVO mine will close between 25 September and 17 October and the other mines will close over that period.
Glencore estimates that more than half of the world's coal mines are operating at a loss, with Australian mining firms struggling with lower prices, a stronger Australian dollar and higher diesel costs. Initial shipping figures show that Australian coal exports slid in July from NSW's Newcastle and from key Queensland ports after a strong end to the 2019-20 fiscal year to 30 June and in a low price environment.
Argus last assessed high-grade Australian thermal coal at $48.54/t fob Newcastle for 6,000 kcal/kg NAR on 7 August, up from $47.69/t on 27 July but down from $65.70/t at the start of the year. It assessed lower grade coal at a new low of $36.17/t fob Newcastle for 5,500 kcal/kg NAR on 7 August, down from $51.52/t at the beginning of the year.
The heat-adjusted premium on a NAR 6,000 basis for higher-grade thermal coal increased to $9/t on 7 August from $8/t at the end of June and around $6.80/t in May.
Glencore ships hard coking coal from its 4mn t/yr Hail Creek joint venture in Queensland and semi-soft coking coal from its other operations. The mid-volatile coking coal price rallied to $71.25/t fob Australia on 7 August from $67.50/t at the end of June, while the premium hard low-volatile coking coal price fell to $106.10/t fob Australia from $113.75/t over the same period, according to Argus' assessments.
| Glencore Australian coal production (mn t) | |||
| Jan-Jun 2019 | Jan-Jun 2020 | ± % | |
| Australian coking coal | 4.3 | 3.7 | -14 |
| Australian semi-soft coking coal | 3.3 | 2.6 | -21 |
| Australian thermal coal exports | 31.0 | 29.4 | -5 |
| Australian thermal coal domestic use | 4.0 | 3.7 | -8 |
| Source: Glencore | |||
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