Teck Resources Ltd., the world’s second-largest exporter of coal used in steelmaking, plans to idle six Canadian operations in response to a four-year slide in prices and demand.
The temporary shutdowns will take place in the third quarter, the Vancouver-based company said Thursday in a statement. The move will cut metallurgical coal production by about 1.5 million metric tons, or 22 percent, in the period. Teck is considering more production cuts for later in the year.
“The cut in and of itself is still only a drop in the bucket -- more cuts are needed,” Greg Barnes, a Toronto-based analyst at TD Securities, said Thursday in a note.
Metallurgical coal prices could plunge beneath a seven-year low amid global oversupply and slowing demand from China, the world’s largest consumer of the commodity. The third-quarter benchmark could tumble to $90 to $95 a metric ton, according to Barnes. The $109.50 benchmark is down from a 2011 high of $330.
Teck Chief Executive Officer Don Lindsay, in an interview March 3, said the industry needs to cut as much as 45 million tons of supply to meet flagging demand.
With the temporary shutdowns, Teck joins Glencore Plc as an industry heavyweight proactively curbing production while some competitors struggle to survive. Glencore, the world’s largest exporter of coal for power plants, said in February it’s trimming its Australian output of the fuel by 15 million tons this year.
Earlier this month, Patriot Coal Corp. filed for bankruptcy for the second time in three years. This week, U.S. companies Alpha Natural Resources Inc., Arch Coal Inc. and Peabody Energy Corp., which all produce thermal and metallurgical coal, traded at all-time lows.
Teck’s decision is “disciplined,” reflecting how metallurgical coal prices will probably fall more before rebounding, Daniel W. Scott and Bryan C. Bergin, analysts at Cowen & Co., said in a note Thursday.
Discussions to set the next benchmark price are under way between Australian miners and Japanese steelmakers, Barnes said.
Chinese imports of the steelmaking ingredient are down 25 percent this year, according to Bloomberg Intelligence analysts Andrew Cosgrove and William Foiles. Recovery prospects are “slim” because Chinese steel production either peaked in 2014 or will this year, Cosgrove and Foiles said in a May 26 note.
Teck’s shutdowns will be staggered in three-week increments, and won’t affect the company’s headcount, spokesman Chris Stannell said in an e-mail Thursday.