BHP sees coal price getting worse before it gets better
A senior BHP Billiton executive has warned the market for Australian resources will get a lot worse before it gets better, saying it would be “dangerous” to invest in a new mine based on the assumption coal prices will recover.
As big miners continue to cut costs following a plunge in international coal prices, BHP Billiton Mitsubishi Alliance asset president Rag Udd painted a bleak picture of the resources sector in Australia.
“I think it’s dangerous to try and align a business around prices improving in metallurgical coal. I personally think it will get worse before it gets better,” Mr Udd told a Queensland Resources Council forum in Brisbane on Wednesday.
“The reality is we need an ever-green strategy to see ourselves through these sort of fundamentals. We have to design a business model which is going to work with these prices and even lower prices to ensure we have a low-cost environment so we can put jobs in place for Queenslanders.”
The price of metallurgical or coking coal has slumped to $US70 a tonne after once being as high as $110 a tonne. The price of thermal coal, used for power generation, has also plummeted since the global downturn. The price of iron ore, Australia’s biggest export commodity, has also slumped to almost $US40.
ONGOING COST CUTS
Both BHP and Rio Tinto have been involved in driving efficiencies in their Australian coal operations by cutting staff and costs. This is expected to continue indefinitely.
BHP BMA operates seven coal mines in the Bowen Basin in Queensland, including Goonyella Riverside, Broadmeadow, Daunia, Peak Downs, Saraj, Crinum, Blackwater and Caval Ridge, as well as the Hay Point coal terminal near Mackay.
BHP BMA announced in August it was moving to service contracts for a range of operational activities at its Blackwater mine to ensure the on-going viability of the mine.
Mr Udd told The Australian Financial Review most of the 300 workers had been re-deployed to other mines, but there were not plans yet to expand the labour hire strategy to other BHP BMA mines.
Thiess managing director Michael Wright told the forum Australia needed to become more competitive to take on low-cost producers in other countries.
“We want people to be employed in the resources sector, but it has to be at a lower cost base. Rather than looking at commodity prices we should be looking at labour costs,” he said.
Altona Mining managing director Alistair Cowden, who runs the copper exploration company based in Perth, said the end result of the current downturn was junior players hitting the wall.
“I’ve been through this many times in the past 30 years, but this one feels bad,” he said. “Where I’m based in Western Australia, in west Perth, you can shoot a cannon down the street because all the juniors are dying. It couldn’t be worse.”
Other industry players at the resources forum remained a bit more optimistic about the future.
Rio Tinto Bauxite and Alumina president Phillip Strachan said while China’s growth had slowed in recent years, the future for alumina production was strong because of the growing consumer market.
“There are still some strong fundamentals for growth over the next five, 10 and 15 years,” he said.
Stanmore Coal managing director Nick Jorss – who is defying the market trend by attempting to develop a new coking coal mine in Queensland – said the demand side of the equation for coal would eventually turn back in their favour.
“I’m not sure whether we’ll see a boom like we did last time, but we’re still bullish in the long-term,” he said.
Queensland Resources Council chief executive Michael Roche told 700 miners at the annual forum that despite the predictions of doom and gloom the outlook was strong for coal exports, especially coking coal.
“There is no viable substitute for coking coal in the production of blast furnace steel,” he said.
“And according to the International Energy Agency, the world will continue to use coal, gas and uranium to produce electricity for decades to come.”
Queensland Premier Annastacia Palaszczuk said the resources sector would remain the backbone of the state’s economy, despite current prices, saying there was a record 219 million tonnes exported last financial year.
“Whatever change may be ahead in the global energy mix, demand for steel will remain very strong into the future,” she said.
“Also, new emerging lower emission technologies will present new opportunities for our resources sector.”