Sign of the times as Yancoal cuts costs
The main focus is on cost reduction at the company's mines and at head office, it told shareholders at Friday's annual meeting, which it expects to result in higher profits.
At the same time, the group is planning to boost output, which will rise to an estimated 24 million tonnes by 2017 from 14 million tonnes in 2012.
Over the past 12 months, Yancoal finalised the acquisition of Gloucester Coal, elevating it to the ranks of one of the country's largest coal producers.
With weak export prices, Yancoal said it was pushing to cut production costs to less than $60 a tonne, from $65 at present.
As part of this, it has flagged cutting overall costs by up to $380 million from 2014, with about half the planned savings coming from optimising infrastructure, and the balance spread across head office functions and improvements from other factors, such as coal blending.
The costcutting comes as both coking and steaming coal prices are expected to remain subdued for the rest of the year.
With the spot hard-coking coal price trading below the recently negotiated second quarter benchmark price, and weak demand from the steel industry and forecast output growth from local producers, export prices will remain under pressure.
Strong supply growth from both Australia and Indonesia is forecast to outstrip demand growth for the next three years, which signals a weak outlook for thermal coal prices.
The one positive may come from a weaker Australian dollar, which might help boost profit margins.
Frequently Asked Questions about this Article…
Yancoal has warned of continued "difficult" global market conditions with sluggish demand and rising export volumes, so it's cutting costs at mines and head office to protect margins. The company told shareholders these cost reductions are expected to result in higher profits, with planned savings aimed at making the business more resilient in a weak coal price environment.
Yancoal is pushing to reduce production costs to less than $60 a tonne, down from around $65 a tonne at present, as part of its response to weak export prices.
The group has flagged cutting overall costs by up to $380 million from 2014. About half of the planned savings are expected from optimising infrastructure, with the remainder coming from head office efficiencies and other measures such as coal blending.
Yancoal plans to boost output to an estimated 24 million tonnes by 2017, up from 14 million tonnes in 2012, as part of its growth strategy alongside cost reductions.
Over the past 12 months Yancoal finalised the acquisition of Gloucester Coal, elevating the company to the ranks of one of the country's largest coal producers, which supports its higher output ambitions.
The article says both coking and steaming coal prices are expected to remain subdued for the rest of the year. Weak demand from the steel industry, spot hard-coking coal trading below the recent Q2 benchmark, and forecast output growth from local producers mean export prices will likely remain under pressure—important for investors because it affects revenue and margins.
Strong supply growth from both Australia and Indonesia is forecast to outstrip demand growth for the next three years, which the article signals will lead to a weak outlook for thermal coal prices—a key risk factor for coal producers' earnings.
Yes. The article notes that a weaker Australian dollar may help boost profit margins, which is one potential positive amid otherwise subdued export prices and challenging market conditions.
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