Brazilian mining major Vale is of the opinion that the global metallurgical (or coking) coal market “may remain oversupplied throughout the year despite some slight production decrease from US producers in 2015”. In its report Vale’s Performance in 2Q15, the miner surveyed the state of the metallurgical coal market during the second quarter of this year (2Q15). It pointed out that premium hard metallurgical low volatility coal free-on-board Australia prices had fallen from $104/t during the first quarter to $93/t in the second quarter, a decline of 16%. Over the same period, the price for pulverised coal injection products went from $92.50/t to $73/t, representing a fall of 21%.

“Metallurgical coal prices declined further with the combination of strong supply and weak demand in the seaborne market,” stated Vale in its report. “The main drag on demand continued to be the slowdown in China’s property sector which affects steel consumption and ultimately coal demand. Product wise, some relative tightness has been seen in the market for the premium midvolatile coal, which has been priced at the same level as the low volatile benchmark coking coal, instead of commanding the usual 2% to 3% discount.”

It noted that coal miners had been able to reduce their costs. This was mainly the result of the fall in oil and other energy prices, tax cuts and currency depreciation against the dollar. This last benefited Australian producers in particular.

Vale currently mines coal in Mozambique and Australia. Its output is predominantly metallurgical coal. Its Mozambican operation is at Moatize, in the country’s western Tete province, while its Australian operation is Carborough Downs, in the state of Queensland. During 2Q15, Moatize’s output came to 1 270 000 t (of which 384 000 t was thermal coal) and Carborough Downs’ to 742 000 t, all of which was metallurgical coal (see Mining Weekly August 7, 2015).

Vale’s earnings before interest, taxes, depreciation and amortisation (Ebitda) for its coal business during 2Q15 came to minus $102-million. This represented an improvement of $26-million, compared with the loss of $128-million in 1Q15. This was the result of lower costs, which fell by $55-million, although this was undercut by lower prices (down by $18-million). Gross revenues for metallurgical coal were up by $8-million, from $129-million in 1Q15 to $137-million in 2Q15, despite the lower prices. The reason was higher sales volumes (up by $26-million). However, gross sales revenues for thermal coal fell by $7-million, from $16-million to $9-million, because of reduced sales volumes.

There was a quarter-on-quarter decrease of 10.1% in the average realised price for metallurgical coal, from $98.17/t to $88.27/t. Spot market prices fell by 16.4%. “The relative improvement in price realisation was driven by better pricing of the Moatize products over the reference premium hard coking coal prices and by lower freight rates,” reported Vale.” Regarding thermal coal, the average realised price fell from $62.26/t to $54.55/t, or by 12.4%.

Adjusted Ebitda for the operations in Mozambique came to minus $118-million in 2Q15, an improvement over the minus $123-million in 1Q15. Adjusted Ebitda for the Australian operations amounted to $16-million in the second quarter, a notable improvement over the minus $5-million in the first quarter. This turnaround resulted from a good performance at Carborough Downs coupled with the halting of operations at the Integra and Isaac Plains mines, which were not profitable.