LONDON, Aug. 21, 2018 /PRNewswire/ --
Recent financial statements of global mining companies
demonstrate that metallurgical coal remains an extremely profitable
commodity.
During the last two years, we estimate that the seaborne
industry has generated an average cash-margin of 40% and
~$44 bn in cash and, at the time of
writing, profitability remains very strong. Such attractive
conditions will not continue indefinitely and, in this Insight, we
discuss recent cost inflation in the industry and why this should
not be overlooked.
In CRU's Metallurgical Coal Cost Report 2017, we highlighted the
fact that industry costs had increased strongly since the start of
2016 and cost inflation has continued in 2018. After spending fell
to 'bare minimum' levels during the downturn, companies have made
rational choices to loosen this approach; marginal revenues remain
very high. Therefore, it is logical for mining companies to produce
as much as possible even if this means increasing marginal costs in
the short-term. As a result, we estimate that global Business Costs
increased by 18% y/y in 2017 as a whole. In 2018, there have been
both upward and downward cost drivers, but we estimate that
underlying costs continue to increase overall.
Underlying cost trends are particularly difficult to determine
in Australia because weather
disruption was severe in 2017 and, in 2018, low train availability
has caused companies to incur greater costs. Supply chain
disruption has resulted in most companies paying more in demurrage
penalties and many sites are having to truck coal to satellite
stockpile areas as primary yards are full. Financial results for
the period 2018 H1 show that unit costs are fairly similar to those
in 2017 H1. However, it is important to remember that Cyclone
Debbie caused a sharp rise in costs in 2017 Q2 last year.
Therefore, costs in Australia may
not be significantly higher y/y, but they remain elevated
nonetheless.
Elsewhere, companies are continuing to attempt to lift sales
volumes and, at most mines, marginal costs are increasing towards
marginal revenues in order to maximise profits. For example, Teck
has increased the use of contractors and rented more mining
equipment in an attempt to sell more in the short-term and this has
lifted marginal costs and contributed to a 7.5% y/y rise in
ex-works costs.
Read the full story
https://www.crugroup.com/knowledge-and-insights/insights/2018/metallurgical-coal-still-extremely-profitable-but-rising-costs-should-not-be-ignored/
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About CRU
CRU offers unrivalled business intelligence on the global
metals, mining and fertilizer industries through market analysis,
price assessments, consultancy and events.
Since our foundation by Robert
Perlman in 1969, we have consistently invested in primary
research and robust methodologies, and developed expert teams in
key locations worldwide, including in hard-to-reach markets such as
China.
CRU employs over 260 experts and has more than 10 offices around
the world, in Europe, the
Americas, China, Asia and Australia – our office in Beijing opened in 2004.
When facing critical business decisions, you can rely on our
first-hand knowledge to give you a complete view of a commodity
market. And you can engage with our experts directly, for the full
picture and a personalised response.
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SOURCE CRU