Yancoal to take the axe to costs as export market heads for glut

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

The main focus is on cost reduction at the company's mines and the head office, it told shareholders at Friday's annual meeting. It expects the measures to yield higher profits.

The group is planning to boost output, which will rise to an estimated 24 million tonnes by 2017 from 14 million tonnes last year.

Over the past year, Yancoal finalised the acquisition of Gloucester Coal, elevating it to the ranks of one of the nation's largest coal producers.

With prices for coal exports remaining weak, Yancoal said it was pushing to cut production costs to less than $60 a tonne, from $65 now.

As part of this, it has signalled cutting overall costs by up to $380 million from next year, with about half the planned savings from optimising infrastructure, and the balance spread across head office functions and improvements in other areas such as coal blending.

Coking and steaming coal prices are expected to remain subdued for the rest of the year.

With the spot price of hard coking coal trading below the recently negotiated second-quarter benchmark price, weak demand from the steel industry and increasing output 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, resulting in a weak outlook for thermal coal prices.

The one positive may come from a weaker Australian dollar, which may help increase profit margins.