BHP reviews coal guidance on strike, China curbs

UK-Australian resources firm BHP is reviewing its thermal coal production guidance because of the continuing strike at its Cerrejon joint venture in Columbia and concerns about the impact of restrictions on Australian coal shipments to China.

BHP had targeted production of 7mn t from its one-third share of Cerrejon and 15mn-17mn t from its New South Wales Energy Coal (NSWEC) operations for the July 2020 to June 2021 fiscal year. It produced 1.04mn t at Cerrejon and 3.62mn t at NSWEC in July-September, at annualised rates of around 4.2mn t/yr and 14.5mn t/yr respectively – a long way behind its target at Cerrejon and slightly behind at NSWEC.

Workers have been on strike at Cerrejon since 31 August in a dispute over changes to shift patterns.

The Chinese government earlier this month told key power generators to stop buying Australian coal, resulting in some shipments being pulled out of the vessel queue at Chinese ports and redirected to other markets. This did not affect BHP's July-September sales and the company has maintained its guidance for NSWEC, but said today that it is monitoring the situation.

NSWEC made a $171mn loss in the year to 30 June because of weak prices and higher costs associated with ageing mines. It has put these mines up for sale and is likely to dispose of them by combining the assets with its BHP Mitsui (BMC) coking coal assets and creating a standalone coal firm, similar to its previous spin-off of South32.

Cyclones in southeast Asia caused some shipments from NSWEC to be pushed back to October and these will be realised in the current quarter.

Beijing's intervention in the Australian coal import sector has pushed down prices for thermal coal, although they are still above lows reached in mid-September. BHP is focused on increasing sales of higher-grade thermal coal, which it expects to have a bigger margin over time.

Argus assessed the price for NAR 6,000 kcal/kg thermal coal at $51.08/t fob Newcastle on 19 October, down from $56.33/t on 7 October but up from $46.18/t on 7 September. It last assessed the price for NAR 5,500 kcal/kg thermal coal at $36.41/t fob Newcastle, down from $42.08/t and up from $35.06/t in the same comparisons.

By Jo Clarke