Glencore to cut Australian coal production

Glencore is working on plans to slash output from Australian coal mines in response to weak prices, in a move that will reinforce the Swiss miner's reputation as the most active manager of supply and demand in global commodity markets.

Glencore is yet to finalise which of its NSW and Queensland mines will bear the brunt of the cuts but confirmed it would soon make ''targeted volume reductions'' in Australian coal.

The closure of individual mines is the likely outcome of Glencore's ''targeted'' cuts. Glenn Campbell

The move comes after prices for top-quality thermal coal from NSW have slumped from more than $US120 a tonne to just $US51 a tonne over the past two years, leaving an estimated 30 per cent of local mines in the red.

Glencore also has a small presence in Queensland coking coal, where prices have slumped from $US210 a tonne in May 2019 to $US111 a tonne on July 22.

While the closure of individual mines is the likely outcome of the ''targeted'' cuts, one option yet to be ruled out is attempting to achieve the cuts collectively across Glencore's Australian mines to limit the impact on workers.

Production from Glencore's less competitive Colombian coal mines has already been reduced, and the company's global coal business will collectively produce 14 per cent (18 million tonnes) less than previously thought this year.

For context, that is the equivalent of taking Whitehaven Coal's entire annual export volumes out of the coal market.

The looming cuts are reminiscent of 2015, when Glencore slashed its Australian coal output by 15 per cent in a bid to reduce an oversupply of coal that was weighing on prices.

"We won't and can't run mines that don't make a financial contribution," Glencore's mining boss Peter Freyberg said in October 2015.

In the same year, Glencore slashed zinc production at its Queensland mines because of a global oversupply of that commodity.

Those 2015 cuts to Australian coal and zinc production played a big role in the price rally that hit markets for both commodities over the subsequent three years, and the looming cuts to coal output will bolster perceptions that coal prices can't fall much further.

Glencore is not the only miner curbing output; Canadian coking coal miner Teck announced in July that it would reduce its annual production target from 25.7 million tonnes of coking coal to between 21 million and 22 million tonnes.

The coal production target issued by BHP for the year ahead was also softer than expected.

Read the full article published in the Australian Financial Review 03 August 2020