Sinking Coal Prices Weighing on Weak Sector

Despite its use as an energy fuel producing heat for homes, prices for coal have been depressed as companies and countries phase it out.

Prices for both thermal and coking coal have steadily trended down since the beginning of the year, hitting lows not seen in the last three years — and they’re poised to go lower.

Despite coal’s use as an energy fuel producing heat for homes, and its role in the steelmaking process, prices have been depressed as companies and countries phase its use out. The value of the industrial resource has dropped by as much as 41 percent since January.

Earlier this year, Germany closed its last black coal mine, and in May international headlines were made when the UK went one week without burning coal for the first time since 1882.

As countries strive to remove coal from their energy grids, the impact to coal miners is being felt.

In mid-October, Kentucky-based Blackhawk Mining, which filed for bankruptcy in July, announced it would close four of its West Virginia coal assets due to the price slump.

“The idled operations primarily produce High Vol A metallurgical coal for sale to domestic and international coke makers and steel producers,” reads its press release. “In 2018, the mines produced approximately 1.3mm tons of coal. Recent weakness in global coal markets, and the corresponding drop in prices to three-year lows, is the reason for the company’s decision.”

And on Monday (October 21), global mining giant BHP (ASX:BHP,NYSE:BHP,LSE:BLT) declared it will replace coal for renewable energy at two of its large copper mines in Chile.

The diversified miner cited compliance with increasingly rigorous environmental standards and wanting to do its part to advance sustainable mining as motivations for the move.

BHP will incorporate renewable energy solutions at the sites, and projects that it will reduce its carbon output by 3 million tonnes while cutting energy costs by 20 percent.

“But there is more we must do because sustainable mining demands effective management of our water resources,” said BHP. “…We must all safeguard precious water supplies and reduce our carbon footprint not only for our future, but for the future of our communities, the environment and the planet.”

While the western world turns away from coal in order to embrace greener, cleaner energy options, nations like China are expected to ramp up demand in coming years, creating a wait-and-see game for producers that are already grappling with rising overhead costs and dwindling revenues.

For now, miners need to get realistic about the cost savings they can achieve while the price is in flux.

Like BHP, diversified Canadian miner Teck Resources (TSX:TECK.A,NYSE:TECK) is looking to reduce costs by thinking green. However, unlike BHP, the coal miner is looking to change its transportation methods instead of altering its energy grid.

Teck has introduced two electric passenger buses to transport employees from its Fording River and Greenhills steelmaking coal operations in the Elk Valley region of British Columbia.

“Taking action to reduce greenhouse gas emissions and improve energy and cost efficiency at our operations is a key part of our approach to responsible mining,” said Don Lindsay, president and CEO.

“These electric buses are made possible by mining products like steelmaking coal and copper, demonstrating the important role that our industry products play in supporting the important global transition to a low-carbon economy.”

As mentioned, China’s coal consumption is forecast to grow, and has already climbed by 9.5 percent for 2019, to 250.57 million tonnes.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.


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