Asian Coal Miners Pursuing Self-defeating Output Gains – Report

From COALGURU

Reuters reported that coal producers in Asia are currently their own worst enemies, raising output in a bid to boost revenue in order to compensate for lower prices.

Economic logic would suggest that when the product you make is in oversupply, eventually prices will fall to the point where output becomes loss-making and is shut down.

However, this logic isn’t applying to Asian coal markets, with miners ramping up output by more than demand is increasing.

The short-term impact has been that spot prices have tumbled, with benchmark Australian thermal coal at Newcastle Port dropping to USD 73.12 a tonne in the week to April 25th. That is not far from a four-and-a-half-year low of USD 72.98 hit last month.

The price is also down 15% so far this year and has almost halved since the post-2008 recession peak of USD 136.30 a tonne, reached in January 2011.

The response to this collapse in pricing has resulted in some production leaving the market, most notably in China and the United States.

But the main coal exporters of Australia and Indonesia appear to be increasing output, with miners perhaps betting each other that they won’t be the first to go bankrupt.

BHP Billiton, the world’s biggest miner, raised output of thermal coal by 14% and coking coal by 28% in the quarter ended March 31st from the same period a year earlier.

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