By David Winning
SYDNEY--Yancoal Australia Ltd. (YAL.AU), controlled by one of
China's biggest coal miners, said there was little sign a global
glut of coal is easing, as it swung to a fiscal first-half loss of
749.4 million Australian dollars (US$688.4 million).
The downbeat outlook came as Yancoal named Reinhold Schmidt, a
former senior executive at Glencore Xstrata PLC (GLEN.LN), as its
new chief executive to succeed Murray Bailey who stepped down
mid-March.
"For both metallurgical and thermal coal markets to return to
balance, the market will require production cuts from some
producers," said Yancoal. "At this stage, there is no sign of any
production cuts so the outlook remains weak."
Yancoal, which is 78%-owned by China's Yanzhou Coal Mining Co.
(YZC), said its net loss for the six months to June 30 compared
with a A$410.0 million profit a year earlier. It said currency
swings which had increased liabilities on its
U.S.-dollar-denominated debt and a A$343 million writedown on its
coal assets were the main causes of the loss.
Once the engine of Australia's economy, helping the nation stave
off a recession during the global financial crisis, the mining
industry is reeling from a sharp slowdown in prices of many
commodities amid cooling growth in top trading partner China.
Several big companies like BHP Billiton Ltd. (BHP) have canceled or
delayed projects, closed mines, and put assets up for sale as the
outlook for major commodities has worsened.
The current problems facing Australia's coal-mining sector
partly have their roots in its earlier success. When prices of
thermal coal used to generate power surged to a record high above
$190 a metric ton in 2008, companies rushed to invest billions of
dollars in new mines and lock in space at ports so they could
export more raw materials to Asia.
That new supply is now weighing heavily on the market, with
Australian coal having to compete for customers with cargoes
rerouted from North America and Europe, where demand is lackluster.
Coal shipments into China and Japan--the world's two biggest
importers--rose 13% and 9%, respectively, in the first five months
of the year, but this hasn't been enough to drain the excess
supply.
Thermal coal prices in Australia are currently below US$80 a
ton--about half the level of coal's 2008 peak.
"The weakening Australian dollar has helped producers to some
extent, but hasn't entirely offset the decline in prices," said
Yancoal, which operates coal mines in New South Wales and
Queensland states, and has been cutting costs by using fewer
contractors.
The Australian dollar fell 14% versus the greenback between
mid-April and the end of June.
Last month, Yanzhou offered to buy out minority shareholders in
Yancoal, which include Singaporean commodities trader Noble Group
Ltd. (N21.SG). At the time, Yanzhou said it could better manage the
impact of weak coal prices if it had full control of the Australian
unit.
On Monday, Yancoal said its independent directors "are
considering the proposal and are undertaking appropriate due
diligence investigations to enable it to assess the proposed terms
of the proposal".
-Write to David Winning at david.winning@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires