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Glencore releases its 2016 half year report

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World Coal,

Glencore has released its half year report for 2016 for its metals, minerals, energy products and agricultural products as well as a financial update.

Focusing on coal, the company reported that seaborne prices steadily increased throughout 1H16 from the lows previously seen in February. This is reported to be driven by reduced export volumes from the US and Indonesia in response to unsustainably low market prices and a lack of investment in new supply. Supply from other seaborne sources, except Russia, which showed a marginal increase year to date, was stable.

The net seaborne supply reduction was subsequently aided by the Chinese government introducing a 276 working day rule for coal producers on 1 May, equating to an effective 16% reduction in volumes. By the end of June 2016, supply shortfalls contributed to the Newcastle, API4 and API2 indices rising by 17%, 22% and 26% respectively from their 1Q16 lows. Prices continued to increase into Q3.

Global seaborne thermal coal demand is expected to remain flat year-on-year, with demand declines in the UK and India offset by increases in China, Vietnam, Philippines, Turkey and the African continent. Demand for premium and index-quality thermal coal remains robust with a significant portion of the supply reductions being of higher energy coals, resulting in even further market segmentation/quality pricing differentials.

Glencore indicated that the metallurgical coal market is significantly tighter period-on-period due to US supply reductions and higher demand from China.

Energy products (including both coal and oil) industrial revenue of US$3363 million was 26% down on 1H15, reflecting lower coal and oil prices and production decreases, following the various previously announced supply-side discipline initiatives and the deconsolidation of Optimum Coal in 3Q15. The lower realised coal prices were the main reason for the 50% reduction in Adjusted EBITDA to US$571 million compared to 1H15, mitigated somewhat by the continued delivery of cost efficiencies/savings and foreign exchange benefits from the stronger US dollar.

Focusing on coal operations

Total coal production was reported to be 58.8 million t for 1H16 – 9.9 million t (14%) lower than in 1H15, mainly due to the partclosure of the Optimum Coal division, before it being placed into business rescue in 3Q15.

Australian metallurgical coal production totalled 2 million t – a decrease of 0.7 million t (26%) compared to 1H15, reflecting geological issues at Oaky Creek and production at Tahmoor temporarily delayed by longwall preparatory work.

Total Australian thermal and semi-soft coal came in at 29.5 million t – an increase of 1.8 million t (6%) from 1H15, a period in which, poor ground conditions at Bulga Underground and a longwall move at Ulan West impacted volumes.

Glencore’s South African thermal coal production finished at 14.1 million t – 8.2 million tonnes (37%) lower than 1H15, mainly due to the suspension of certain production within Optimum Coal and the closures of the Middelkraal and South Witbank mines.

Prodeco’s production for 1H16 was 8.3 million t – 1.8 million t (18%) lower than than the same half in 2015, primarily due to volumes being proactively reduced in response to market conditions.

Attributable production from Cerrejón totalled 4.9 million t and was 1 million t (17%) lower than 1H15, mainly due to environmental restrictions introduced to improve the management of dust emissions and unusually heavy rainfall in May and June.

Edited from press release by Harleigh Hobbs

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