SYDNEY, Aug 16: BHP Billiton said on Thursday jobs could go at its Australian coal mines as the company faces a deteriorating global market, the latest sign of global miners scaling back due to slowing industrial activity in China.
BHP in a 50-50 partnership with Japan’s Mitsubishi operates seven coal mines in Queensland’s Bowen Basin yielding mostly metallurgical coal used in steel making. At peak output, the mines can supply up to a fifth of the world’s traded coal.
‘Against a backdrop of increasing costs and falling commodity prices, we continue to focus on reducing our overheads and operating costs,’ BHP said in a statement emailed to Reuters.
‘We don’t intend to provide any detail about specific adjustments, but clearly there may be some impact on jobs in some areas,’ it added, responding to a question about reports of job losses at its coal mines.
Softening demand from China, where the economy is growing at its slowest pace in more than three years, has dragged prices of coal, iron ore and other commodities to multi-year lows, hitting profits of miners such as BHP and Brazil’s Vale SA.
BHP has already backed away from an $80 billion five-year spending plan announced in 2011, and has since signalled it would review its project pipeline and focus on cutting costs.
BHP employs about 10,000 at its Queensland coal mines, including 3,500 unionised staff, and is in the midst of resolving an 18-month dispute with the union over work conditions.
Union representatives could not immediately be reached for comment.
The drop in global coal prices, high costs, and a strong Australian dollar have prompted other coal producers to trim output and cut contract workforce.
Thermal coal producer Xstrata said this week it had cut some of its contractors at its Australian coal operations ‘given current market conditions.’
CHINESE STEEL PRICES
‘We’ve seen quite a sharp pullback in (metallurgical) coal prices in the last month or so,’ Mark Pervan, global head of commodity strategy at ANZ Research in Melbourne, said.
Spot metallurgical coal prices have dropped to just over $170 per tonne, down over 20 percent from the beginning of July.
‘Coking coal prices are now more reflective of demand dynamics rather than supply, and the demand dynamics are quite soft and that’s showing up in the very weak steel prices we are seeing in China,’ Pervan added.
Prices for Australian thermal coal, which BHP also mines, have dropped about 18 percent since the beginning of the year to just under $93 per tonne, but have recovered from two-year lows under $90 per tonne seen in June of this year.
China’s steel prices, hovering near record lows, are expected to remain weak in the next few months due to a supply glut that will offset an expected increase in demand, the China Iron & Steel Association (CISA) said on Thursday.
BHP SET FOR WEAKER EARNINGS
Australian coal miners are not alone in cutting production. China, which in addition to being the world’s top consumer of coal is also the world’s top producer, said on Wednesday it would cut its coal output targets in its three top producing regions by as much as 7 percent to ease a glut in supplies.
Given this backdrop, analysts expect BHP to report its first drop in annual profits since the global financial crisis when it releases its financial results on Aug 22.
A major concern in the run-up to the reporting season has also been BHP’s gas assets. BHP said on Aug. 3 it would take a $2.8 billion charge on a recently acquired U.S. Shale business and $450 million on its Australian nickel division as falling commodities prices and rising costs took their toll.
The writedowns prompted CEO Marius Kloppers to give up his bonus.
BHP is expected to see attributable profit excluding exceptional items dropping to $16.9 billion, according to a consensus of forecasts compiled by the company, from $21.7 billion a year ago. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for the year to the end of June is expected to drop over 10 percent to $33.2 billion.
(agencies)
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