Finally: Australian Thermal Coal Production Being Cut
Bucking wider trends, one coal miner has finally cracked and decided to cut production at its Australian mines amidst growing oversupply in the global thermal coal market. Beginning mid-December, Glencore will halt Australian coal production for three weeks.
Bucking wider trends, one coal miner has finally cracked and decided to cut production at its Australian mines amidst growing oversupply in the global thermal coal market. Beginning mid-December, Glencore (LSE:GLEN) will halt Australian coal production for three weeks, according to Reuters. The move will remove approximately 5 million tonnes of supply from an oversupplied market. The company said in a statement, "[t]his is a considered management decision given the current oversupply situation and reduces the need to push incremental sales into an already weak pricing environment." Most Australian coal miners have continued to churn out coal at a loss as due to take-or-pay contracts for rail and port services they would lose even more if they were to stop production. However, the supply glut is weighing on thermal coal, and prices for Aussie coal have fallen by 27 percent so far this year alone. In that light, Glencore's decision is a welcome change. Indeed, it seems that the move has already had an impact. Bloomberg reported that European thermal coal prices rose for the first time in three weeks in tandem with Glencore's announcement, with the benchmark year-ahead contract gaining 0.4 percent on Friday and 1.2 percent for the week. Furthermore, Australian thermal coal prices also saw gains, with coal for delivery in December from the port of Newcastle gaining 30 cents to trade at $63 per tonne by 4:50 p.m. GMT. Is it enough? Societe Generale (EPA:GLE) analyst Paolo Coghe told Bloomberg that Glencore's decision could mean the coal industry has finally "had enough and is ready to take action to cut oversupply." However, he also cautioned that "[a]n even more heroic effort" will be needed in order to truly bring down oversupply and support prices in the face of weak demand.