Sign of the times as Yancoal cuts costs

Yancoal Australia, one of the largest remaining listed coalminers, has warned of continued "difficult" conditions in the global market, with sluggish demand and rising export volumes forcing all producers to cut 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.