Mining giant, Glencore has decided to suspend operations at coal mines in Hunter Valley, New South Wales, Australia for two weeks.
The reason being COVID-led sluggish coal demand globally and increasing resistance from its key importer, China to avoid Australian coal cargos.
Glencore on Friday quoted the site and equipment shutdowns, which would coincide with September school holidays, was necessary in order to wind back output volumes and manage the severe impact on demand. Workers would be required to take annual leave over this time.
Rising diplomatic tensions between the two countries
Glencore is Australia’s biggest coal exporter and has been hit by China’s decision to limit imports of foreign coal.
The company’s chief executive Ivan Glasenberg recently said that that the diplomatic tensions between China and Australia are hurting the company’s coal export business.
While China always puts unofficial limits on coal imports in order to protect domestic miners, the tensions between the two countries escalated when Canberra called for a coronavirus inquiry prompting the Chinese government to instruct state-owned utilities to avoid Australian coal in particular – favouring Indonesian or Russian cargoes instead.
China’s protectionist policy against coal imports is resulting in Chinese power utilities to pay 40-60% more for using each tonne of domestic coal rather than Australian coal and has also contributed to severe downturn in Australian thermal coal prices.
Fall in price and production
The Newcastle’s 6000 kcal/kg coal price is currently being assessed at $48.3/t which is way below the price of $72.5/t around same time last year.
Revenue from Glencore’s sales of Australian thermal coal plunged by 23% y-o-y in H1 CY’20 due to lower demand and prices. Amid the current market conditions, Glencore has also revised its production guidance for Australian coal in CY20 by 7 mn t or 8%.
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