Weak demand sees Peabody suspend Australian coal mine

US energy firm Peabody will close its 2.5mn t/yr Wambo underground thermal and semi-soft coking coal mine in New South Wales (NSW), Australia to align production with weaker demand and offset the effect of lower coal prices.

The firm will stop coal production from the underground mine for 59 days from 19 June, after high-grade thermal coal and semi-soft coking coal prices fell to four-year lows amid Covid-19 related falls in seaborne demand. It will continue some development work that could see the mine restart in mid-August.

Peabody follows Australian independent Terracom in cutting production in response to market conditions. Initial port data suggests that other producers may be quietly cutting production at the margins in response to weaker demand and lower prices. Several Australian thermal coal mining firms are making a loss at current prices and non-premium metallurgical coal mining firms are also struggling, with Australian coal mining firm AMCI cutting production at the 3.5mn t/yr Carborough Downs mine.

Argus last assessed the high-grade Australian thermal coal price at $52.04/t fob Newcastle for 6,000 kcal/kg NAR on 22 May, down from $67.58/t at the start of April but up from $48.63/t on 7 May that was a low not seen since May 2016. It assessed the lower grade coal price at $42.99/t fob Newcastle for 5,500 kcal/kg NAR on 22 May, down from $53.18/t at the start of April but up from the four-year low of $38.48/t on 7 May. Argus last assessed the semi-soft mid-volatile coking coal price at $67.50/t fob Australia on 22 May, down from $100/t at the start of April and a record low since Argus started publishing the data in December 2017.

The Wambo underground mine, which is in the Hunter valley region of NSW, sold 2.2mn t of semi-soft coking and thermal coal in 2019. The closure will not affect the 3.5mn t/yr Wambo open-cut mine, which is combining with Switzerland-based mining firm Glencore's United mine to form the 6mn t/yr United Wambo joint venture. The United Wambo joint venture was formally created in October-December 2019 following government approval and joint production is due to start late this year. The joint venture will see operating costs temporarily rise in 2020 during the transition to the new structure, as well as incurring around $60mn in capital costs in 2020, at a time when most mining firms are focused on reducing costs to maximise margins.

By Jo Clarke