June 5, 2012 / 10:01 AM / 6 years ago

REFILE-Asia coal prices fall close to output costs

(Changes dateline)

By Fayen Wong and Fergus Jensen

NUSA DUA, Indonesia, June 5 (Reuters) - Asian coal prices have fallen close to the production costs of some miners and prolonged weakness will force some high-cost producers in Indonesia, the world’s top exporter of thermal coal, to shut and reduce supplies about 10 percent, industry experts said on Tuesday.

A supply glut in Asia, along with weaker demand from China, has dragged coal prices to their lowest in nearly two years, squeezing producer margins.

Thermal coal prices have slumped more than a quarter since October, to $92 a tonne free-on-board (FOB), on globalCOAL’s Australian Newcastle Index - a level few players had expected.

The average production cost of low-rank coal, sub-bituminous and bituminous coal in Indonesia was hovering at around $40, $60 and $80 a tonne respectively, Eko Natalina, marketing director at PT Berau Coal, told the Coaltrans conference in Bali.

“Last year, when miners were planning their production for 2012, many were bullish and expected prices to be high. So they would have increased the strip-ratios and have more processing or washing, which would have driven up the cost of production,” he said.

Should benchmark Australian steam coal prices fall below $90 a tonne for a prolonged period, some higher-cost producers in Indonesia could be forced out.

“We could see up to 10 percent of supply decrease from Indonesia,” said Michael Soerijadji, Vice President of Marketing of PT Adimitra Baratama Nusantara.

The drop comes as expectations of weaker global demand hurt commodity prices across the board, with the benchmark Thomson Reuters-Jefferies CRB index dropping almost 11 percent in May, the second-largest monthly decline since 2008.


In top coal consumer China, buyers are deferring or have defaulted on coal deliveries following the price drop, providing evidence that a slowdown in the world’s second-largest economy is hurting its appetite for commodities.

Slowing commodities demand is leading BHP Billiton , the world’s biggest diversified mining company, to scale back capital spending across business units. It warned last month that it expected commodity markets to cool further.

Outside Asia, prices have also dropped to a loss-making level for higher-cost U.S. and Russian coal producers and smaller mines in South Africa, Colombia and Australia.

Current prices may also force some miners to put expansion plans on hold.

“At the current price level, with the current Australian dollar, there’s some incremental production out of Australia that will not be brought online or will cease production, and there will also be some Indonesian expansion that does not happen,” Alastair McLeod, Chief Financial Officer of Indonesia’s Bayan Resources, told Reuters.

Bayan now forecasts its output this year at 17.5 million tonnes, down from earlier expectations of 18 million to 20 million.

“The coal market is pretty bearish at the moment,” McLeod said. (Editing by Neil Chatterjee and Clarence Fernandez)

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