Glencore may close South African coal ops

Glencore subsidiary Optimum is considering a closure of some of its operations in South Africa, with a review likely for Australian coal operations.

The decision, which will reduce production rates by around 5 million tonnes per annum, would affect approximately 1070 workers.

"The review was initiated as a result of the ongoing financial hardship at Optimum arising from difficult market conditions and the continued deterioration in the export price," Glencore said.

The sites will be placed into care and maintenance and "if economic conditions improve, the company will consider re-opening the operations".

Glencore operates coal mines in South Africa, Colombia, and Australia, with the majority of its coal operations located in Queensland and NSW.

When asked if this decision to reduce supply in South Africa may affect Australian operations, a Glencore spokesperson told Australian Mining that "all of our coal operations remain under review in light of difficult market conditions and the ongoing deterioration in the export price".

The miner recently took drastic action to reduce its output in Australia, closing down its Australian coal mines over the Christmas break.

According to the miner it was "a considered management decision given the current oversupply situation".

Glencore said this will reduce the need to push incremental sales in the weak commodity price environment.

"We remain confident in demand growth for our products and believe that the supply and demand balance will be restored in the medium term," Glencore said at the time of the decision.

The Christmas shutdowns reduced Glencore's Australian coal output by a planned five million tonnes.

More and more coal miners are looking at ways to reduce the current oversupply damaging the market.

The commodity has faced a massive decline. It has fallen in price by more than a third in a year from December 2013 to December 2014, as Chinese demand waned and a projects came online, flooding the market and causing excessive supply problems.

The Bureau of Resources and Energy Economics (BREE) said Australia exported 181 million tonnes of metallurgical coal in 2013-14, with this expected to increase to 185 million tonnes in 2014-15, while thermal coal exports are tipped to top 196 million tonnes in 2014-15.

Queensland alone managed to export 216 million tonnes of both thermal and coking coal for 2014, setting new export records.

Making matters worse for miners in Australia is the supply coming online from other competitors such as Indonesia, Colombia and South Africa, further flooding the market, while Russia has plans to quadruple its coal output levels by 2030.

At the same time, rising natural gas production in the United States means thermal coal will be diverted from domestic American markets where it is used as an energy source, to export destinations – particularly Asia.

Added to this are closer energy ties between China and Russia and cross-border co-operation between the two nations.

According to Anglo American CEO Mark Cutifani coal mines will be closed or suspended at a steady rate until reduced supply drives a price recovery, adding that globally they will most likely shut at a rate of around one every two to three weeks until the lack of supply finally affects price.

Seamus French, Anglo American Coal's CEO, at the time clarified: "Significant reductions in operating costs and reduced mining activity have failed to offset the impact of a weakening metallurgical coal price."

"As a result, we have been forced to take further action in response to the weak market conditions, so that we can preserve the long-term future of the operations."

Last year it placed the Peace River coal mine in Canada into care and maintenance for this reason.

Cutifani went on to state that other operators are likely to carry out similar operations globally.

"I suspect others will have to do fairly similar moves to keep themselves whole," he said.

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