Glencore plans to shutter Australian coal mines for three weeks

November 14, 2014

As it continues to face weakness in the global coal market and oversupply issues in Australia, Glencore announced that it will shutter its 16 coal operations in Australia for three weeks beginning in mid December.

The shut down will trim production by about 5 Mt (5 million st), the company said.

“This is a considered management decision given the current oversupply situation and reduces the need to push incremental sales into an already weak pricing environment,” the company said in a statement. “We remain confident in demand growth for our products and believe that the supply and demand balance will be restored in the medium term.”

Glencore’s mines produced more than 80 Mt (88 million st) of thermal and coking coal last year and employed around 8,600 people, The Australian reported.

The decision to temporarily shut Australian mines allows Glencore to stop short of taking more drastic measures, including closing another mine for much longer. Executives had looked at a range of options to curb Glencore’s output into a seaborne market already awash with coal, including halting production at one of its least profitable mines for a year, a person familiar with the matter said.

The current problems facing Australia’s mining sector partly have their roots in its earlier success. When thermal coal prices surged to a record high above $US190/t in 2008, companies rushed to invest billions of dollars in new mines and ports so they could export more raw materials to Asia.

That new supply is now weighing heavily on the market, with Australian coal having to compete for customers with cargoes rerouted from North America and Europe, where there has been lackluster demand.

The slowdown in China, which has been buying less foreign thermal coal, is also hurting the market.

Thermal coal prices have been trading near their lowest level in five years as available supplies of the commodity have outpaced demand. This year alone, the price for Australian coal has fallen more than 27 percent.

Glencore's shutdown will force thousands of coal workers to take annual leave over the Christmas period, and leave will be brought forward for those employees

 

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