Teck sets quarterly coal output record; but coal sales prices remain grim

Prices for metallurgical coal have fallen further since the beginning of the year and the market for this coal remains oversupplied, primarily due to indications of weakening demand in China, said Teck Resources Ltd. (TSX: TCK.A and TCK.B, NYSE: TCK) on April 21 in reporting its results for the first quarter of this year.

Teck is Canada’s largest producer of met coal and a major producer of other mined commodities.

In its coal division, the gross profit before depreciation and amortization in the first quarter was similar to a year ago in the first quarter. Increased sales at 6.8 million tonnes set a new first quarter record, but the average realized coal price of US$106 per tonne was 19% lower than the first quarter of 2014, reflecting oversupplied steelmaking coal market conditions. The favorable effect of a stronger U.S. dollar in the first quarter partly offset the lower coal price, which weakened by 10% in Canadian dollar terms compared with the same period a year ago.

Coal sales of 6.8 million tonnes in the first quarter were 10% higher than the same period last year and exceeded the previous record for this period by nearly 200,000 tonnes. Record first quarter production of 6.8 million tonnes was 1% higher than the same period a year ago with the Line Creek and Cardinal River mines both setting new first quarter production records. Unit cash production costs at the mines were 10% lower this quarter than in the comparative period, which is attributable to both the success of initiatives undertaken through a cost reduction program and lower energy prices.

Coal prices declined further during the quarter. Although demand remains good outside of China, Chinese imports have declined substantially. Given oversupply in the market, Teck said it expects continued pressure on prices until a better market balance is established.

Coal prices for the second quarter of 2015 have been agreed with the majority of Teck’s quarterly priced customers based on US$109.50 per tonne for the highest quality products. This is consistent with prices reportedly achieved by competitors. Additional sales priced on a spot basis will reflect market conditions when sales are concluded.

As reported on April 5, there was a flash fire in the dryer complex at the Greenhills Operation. Operations resumed later in the day with no effect on production. Currently the Line Creek and Coal Mountain mines are operating under expired collective agreements and the company is working through the collective bargaining processes for these operations.

We are expecting coal sales in the second quarter of 2015 to be around 6 million tonnes,” Teck said. “Although demand remains good outside of China, downward trending price assessments may be delaying purchasing decisions in other markets, which could affect sales for the quarter. Vessel nominations for quarterly contract shipments are determined by customers and final sales and average prices for the quarter will depend on product mix, market direction for spot priced sales, timely arrival of vessels, as well as the performance of the rail transportation network and coal-loading facilities.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.