Have coal prices hit the bottom?

Trent Ernst, Editor


Local miners waiting for Quintette to re-open will have to wait a little longer, as coal prices have dropped yet again.

Teck has signed contracts for 5.5 million tonnes of coal for Q2 of 2015 at US$109.50.

That’s down from US$117 in the first quarter of the year, and down from US$120 a year ago, when they made the decision to defer opening the Quintette mine.

In order to remain cash positive, Teck has cut its dividends to shareholders from $0.45 to $0.15.

“Our ongoing focus on cost management and operational performance, aided by the strong U.S. dollar, is enabling our diversified business to withstand the generally weak commodity price environment,” said Don Lindsay, Teck’s president and CEO, in a release.

Teck remains the only metallurgical coal miner in BC still operating despite falling coal prices.

For the first quarter of 2015, Teck is reporting first quarter profit attributable to shareholders of $64 million, compared with $105 million in 2014.

Lindsay says the drop in coal prices is due to oversupply. The company has managed to cut costs by about ten percent, and the low Canadian dollar and lower oil prices are also helping to reduce costs.

Steelmaking coal demand from China continues to be low. While the company says it is seeing stronger sales elsewhere, it does not expect prices to go up until a better market balance is established.

Moody’s Investor Service is cautiously saying that this may be the bottom of the cycle. However, they are also quick to point out that continued growth in global supply will keep prices low for the next few years.

Moody’s believes that as much as half of global met coal production is being produced at a loss.

In Australia, 30 mta of capacity is due to come online over the next three years in the country from projects that have already started or preparing to commence construction.

However, production was down eleven percent for Q1 of 2015, compared to a year ago.

A portion of that is attributed to tropical cyclone Marcha.

Former head of Xstrata Mick Davis echoed these cautious sentiments at the FT Commodities Global Summit in Switzerland earlier this month, saying he expected the market to remain depressed this year. “Are we towards the bottom of the market,” he said in a story on FT.com? “Yes. Whether we have reached the bottom of the market, I would not know.”