Glencore to Suspend Ravensworth Coal Mine as Prices Slump

Glencore Xstrata Plc, the world’s fourth-biggest mining company, will suspend steelmaking coal production at its Ravensworth mine in Australia from September, citing lower prices, high costs and a strong local dollar.

Operations at the underground mine, which began output in 2007 and employs 130 people, are “no longer viable,” the Baar, Switzerland-based company said today in an e-mailed statement. Ravensworth produced 2.1 million metric tons of saleable semi-soft coking coal last year, equivalent to about 1 percent of total metallurgical coal shipments last year from Australia, the world’s biggest exporter.

Steelmaking coal prices this month sank to the lowest level in at least four years while the power-station grade dropped to the weakest since 2009 amid a supply glut that’s leaving few mines profitable. Glencore last year halted work on an export terminal in Queensland while BHP Billiton Ltd., the largest exporter of coking coal, said last month it would cut 230 jobs at the Saraji mine in the state to reduce costs.

“At these prices, a substantial portion of world metallurgical coal production is believed to be loss-making,” Australia’s Bureau of Resources and Energy Economics said in a report yesterday. “There are still a number of producers that will face rising financial pressure,” because of lower thermal coal prices, it said. “Some operations may be forced to close or scale back production over the coming years.”

Coal Oversupply

Steps were taken in the past year to try to improve the profitability at Ravensworth, Glencore said. The world’s biggest exporter of power-station coal also owns the Mount Owen and Liddell coal operations in Australia’s Hunter Valley. Two open-cut mines at Ravensworth that produce thermal coal are operating as usual, Francis De Rosa, a company spokesman in Sydney, said by phone today.

The oversupply in coking coal is estimated by Morgan Stanley to be about 6.6 million tons this year, equivalent to about 2.3 percent of global imports. Supply of thermal coal will exceed demand by 4.9 million tons, the bank estimated in a January report.

While miners scale back output at some mines, Australia’s shipments of both coking and power-station coal are still forecast to increase this year, extending the overhang. Exports of the thermal variety will increase by 3.7 percent to 195 million tons while the country will ship 174 million tons of metallurgical coal, 2.4 percent more than in 2013, according to BREE’s estimates.

Price Slump

Producers in Australia are locked into long-term rail freight and port deals, which are required to finance the export infrastructure. Under such take-or-pay agreements, suppliers must pay a fee regardless of whether cargoes are shipped, discouraging them from cutting exports.

Spot coking coal fell to $114.75 a ton on March 18, the lowest since at least March 2010, according to data from Energy Publishing Inc. Thermal coal at the Australian port of Newcastle slid to $72.98 in the week ended March 14, the lowest since October 2009, according to globalCOAL, a London-based data provider.

“The situation for coal miners has made it really tough to continue business,” Michiaki Harada, director at Japan Coal Energy Center, a research institute, said by phone from Tokyo today. “There are no price-supporting factors.”

The slump contributed to a 12 percent drop in adjusted earnings before interest, tax, depreciation and amortization for Glencore’s energy products business in 2013, according to the company’s annual report, which described the prospects for the market this year as “challenging.” Glencore shares are down 2.1 percent this year at 305.90 pence in London today.

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