CRU: metallurgical coal still very profitable

In CRU's Metallurgical Coal Cost Report 2017, the group highlighted the industry’s rising costs since the start of 2016 and that cost inflation has continued in 2018.

After spending fell to low levels during the downturn, companies have reportedly 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.

CRU estimates that global business costs increased by 18% yr/yr in 2017 as a whole.

In 2018, there have reportedly been both upward and downward cost drivers, but the group estimates that underlying costs continue to increase overall.

Underlying cost trends are particularly difficult to determine in Australia as weather disruption was severe in 2017 and, in 2018, low train availability caused companies to incur greater costs. Supply chain disruption has also 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 1H18 show that unit costs are fairly similar to those in 1H17. However, it is important to remember that Cyclone Debbie caused a sharp rise in costs in 2Q17 last year. Therefore, costs in Australia may not be significantly higher yr/yr, but they remain elevated nonetheless.

Elsewhere, according to CRU, 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.

Read the article online at: https://www.worldcoal.com/coal/23082018/cru-metallurgical-coal-still-very-profitable/