Coal Problems Being Made Worse by Global Slowdown, Glencore Says
The slowdown across global economies is exacerbating a coal glut that’s driven prices for the fuel to the lowest level in eight years, according to Glencore Plc.
The market continues to re-balance amid weaker than forecast demand, said Peter Freyberg, Glencore’s head of coal, according to the e-mailed text of his speech delivered in Newcastle, Australia. The mining company, which in February announced it would cut Australian output by 15 million metric tons this year and delay some projects, will continue to review its operations to find ways of saving money, Freyberg said.
Coal prices have collapsed amid a broader slump in commodities that has rocked Glencore, prompting a 29 percent slump in its share price in a single day last week on concern over its debt burden. The Swiss company, the world’s biggest exporter of thermal coal, has since rebounded after it said business was “robust” and it had secure access to funding. Shares closed at 117.85 pence in London Tuesday.
“The current oversupply of coal has been compounded by the ongoing global economic uncertainty,” Freyberg said. “Growth rates in much of the developing world -- most obviously in China -- have slowed considerably.”
China, the biggest consumer of grains, energy and metals, is expanding at the slowest pace in two decades, fueling volatility in global markets. The Bloomberg Commodity Index, a gauge of returns from 22 raw material futures contracts, capped its worst quarterly loss since 2008 on Sept. 30.
Goldman Sachs Group Inc. and Morgan Stanley have cut their coal price forecasts from 2016 to 2018, citing soft demand and ample supply. Weak power consumption growth across Asia and subdued global trade flows are undermining prices, Morgan Stanley said in a Sept. 29 report.
Thermal coal at the port of Newcastle in Australia, the fuel’s biggest export harbor, dropped to $54.37 a metric ton in April, the lowest level since May 2007, according to data from Globalcoal. Prices have slid the past three months, the longest run of declines since April 2014.
“Times are very tough and coal continues to face challenges,” Freyberg said. “Glencore has reason for optimism. Our long-term thermal supply and demand outlook has never relied on ongoing Chinese import growth.”
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.