Glencore Pumps Up Coal Output Despite Weak Prices

Glencore is continuing to raise its thermal coal output in Australia and push its coal business towards a new production record this year, despite prices for the commodity crashing to five-year lows.

Ivan Glasenberg

Glencore - the dominant coal exporter in the global coal market - said overnight that total coal production has risen 7 per cent on the back of a 15 per cent increase in thermal coal exports out of Australia.

The company told the market in its third quarter production update that its global coal division produced 111.4 million tonnes in the nine months to September, against 104.6 million tonnes last year.

But like all in the coal sector, the trading giant took a big hit in the period on prices.Its average realised export price for thermal coal over the nine months was $US73, a 13 per cent fall on the $US84 averaged last year.

It marks a dramatic fall from the boom times of ­mid-2011, when thermal coal was fetching more than $US120 a tonne. Glencore’s coal expansion amid heavily depressed prices comes as Glencore boss Ivan Glasenberg lashes mining giants BHP Billiton and Rio Tinto for dramatically expanding production in the face of falling iron ore prices.

Mr Glasenberg has repeatedly attacked the price impact of the expansion strategies being used by the iron ore majors, as part of his attempt to pitch a $190 billion “merger of equals” with Rio.

On a tour of its Australian operations in September, Glencore told sell-side analysts that its coal output this calendar year would be 14 per cent greater than in 2012. And Glencore has a series of brownfield expansions in the pipeline.

It is forecasting total managed coal production of 168 million tonnes in the 2014 calendar year, beating a previous record of 157 million tonnes set last year.

Glencore had also been eyeing a merger of its Hunter Valley coal operations in New South Wales with Rio Tinto’s assets in the region, and told analysts this year that such a move would achieve about $500 million in annual savings or “synergies”.

Some market observers have said Mr Glasenberg’s push for a highly unlikely mega merger with Rio could in fact be an attempt to force its target to agree to a merger of the two majors’ Hunter Valley businesses.

Glencore’s acquisition of Xstrata – Australa’s largest thermal coal producer – was bedded down last year.

Glencore’s total managed production in Australia is forecast at 94 million tonnes this year, up on 81 million tonnes last year, as its new Clermont thermal coalmine, in central Queensland, comes online.

Source: (Australian Financial Review, Nov 5, 2014)