Falling Coal Prices Wreaking Havoc With Corporate Balance Sheets
The slide in oil prices has raised speculation that oil companies in the U.S. could be forced to cut back on production, but a market slump in another commodity is also putting pressure on producers.
Coal markets are currently experiencing a supply glut that is showing no signs of recovery. Mining companies drew up plans for billion-dollar projects in the mid-2000s, when commodity prices were on the upswing. With many of those projects now coming online, coal production is rising.
Whether or not that’s true, it’s clear that the markets are not being good to coal. BHP Billiton is adding a new “world class” mine, but other mines in Australia are shutting down or laying off workers because of low prices and weak demand.
Much of that has to do with slowing demand in China. Third quarter figures showed that the Chinese economy expanded at a 7.3 percent annual rate, beating estimates, but still the slowest pace in five years.
Metallurgical coal, used in steelmaking, faces a 3 percent levy, while the tariff for thermal coal, which is burned for electricity, will be 6 percent. China sources around 39 percent of its coal imports from Australia, but the tariff threatens to slash that amount.
Intriguingly however, the Chinese government has more recently hinted that coal tariffs would be waived if Australia and China complete a free trade agreement. No doubt the move will enhance China’s leverage during the negotiations.
Source: oilpricecom-Falling Coal Prices Wreaking Havoc With Corporate Balance Sheets
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