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Outlook for coal margins hurting

World Coal,

Coal was among the worst performing commodities in terms of cash margins in 2013, according to a new report by Wood Mackenzie.

"The sectors that fare the worst, with biggest average falls in margins from 2012 to 2014 are copper, export metallurgical coal and gold,” commented Steve Hulton, principal mining analyst for Wood Mackenzie. Margins for export metallurgical coal are only 25% of average price in 2014, down from 30% in 2012.

The outlook for thermal coal is also bleak with Wood Mackenzie forecasting an average margin of only 19% in 2014.

"Operating costs in the mining industry have risen rapidly over recent years, but now that prices have dropped there is a renewed focus from mining companies on reducing costs and trying to protect margins," continues Hulton. "Individual mining companies will be variously affected depending on their exposure to the different commodities, and where their particular mines sit on the respective industry cost/margin curves. As price takers, there are limited tunes the producers can play and one of them will be to slow down on capital spend and prioritise the commodities that have the best returns."

Edited by Jonathan Rowland

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