THE chief executive of Xstrata Coal, Peter Freyberg, has called the bottom of the thermal coal market, telling investors last week that "we are seeing recovery in the markets".
"I think the market probably bottomed about a month ago and there's been steady improvement over the last four or five weeks where we've seen thermal prices increasing by $US5 or $US6 in the spot market," Mr Freyberg said during questions after Xstrata's half-year earnings' presentation in London last Tuesday.
Spot thermal coal prices fell dramatically in the first half but Mr Freyberg said Xstrata's output was largely contracted, with only 10 per cent unsold this year, and there would be no material impact on its earnings. Xstrata is the world's biggest exporter of thermal coal.
"We were able, I think, by seeing where the market was trending, to position ourselves quite well," he said.
"Certainly, there are some spot cargoes out there with traders that are seeing prices lower and are having difficulty in performing, but in general our relationship with our customers is fairly good and we're working through this." Looking towards 2013, Mr Freyberg said a recovery would be underpinned by rising oil prices and a reduction in exports from the US, where some producers were now "out of the money", and Colombia, due to industrial unrest.
"We are seeing firming and, looking a bit forward, we are positive going into [the fourth quarter of 2012]".
Last week, commodities analysts at Macquarie Research noted that thermal coal prices appeared to have found "a degree of stability".
Stockpiles were falling, mainly due to Chinese domestic shipments being curtailed. "The fundamentals are definitely improving, though we would suggest prices have to maintain current levels for a couple of months yet to keep supply offline until normal stocks levels are achieved," they wrote.
"Only at this point are domestic coal prices likely to rise to incentivise tonnes back into the market, with demand still subdued."
Last week Xstrata reported a 31 per cent drop in earnings before interest, tax, depreciation and amortisation to $US4 billion in the June half, and announced cost savings of $US970 million and a deferral of $US1 billion of spending in 2012.
Asked about the future of Xstrata's massive proposed 60 million tones per annum Wandoan thermal coalmine in Queensland's Surat Basin, the chief executive of Xstrata, Mick Davis, only said that the mine remained "a very, very important component of Xstrata's growth potential ... but it is not part of the current phase of expansion.
"It is important for us to keep that project viable and the optionality of the project strong and at the appropriate moment to trigger the project. It is a fabulous resource it is a resource that will deliver coal into the market, at an appropriate time."