The great Australian resources boom is starting to fly apart at the seams with a major coal mine shut, production cut and another Queensland metal mine affected yesterday.
The global slowdown and crunching of the commodities boom continues with three major Australian based producers revealing dramatic moves to counter slumping demand.
Queensland based coal miners, Xstrata and Macarthur Coal have both cut production in response to slowing offtake by customers, while the WA based Fortescue Metals is looking at possible legal action over contracts not honoured by offshore customers/ (See story below).
And the embattled OZ Minerals is cutting staff in Queensland.
Here’s the toll yesterday:
Xstrata will cut 190 contractors and 40 permanent workers at its Okay Creek coal mine in central Queensland.
Australia’s largest zinc miner, OZ Minerals, laid off 110 workers at its Lawn Hill site and 25 at its Karumba port in north-western Queensland this Friday.
Macarthur Coal will lay off 180 employees and contractors.
The news of the job cuts follows Rio Tinto’s announcement it will axe 14,000 jobs worldwide.
The three events are a dramatic underlining of Monday’s downgrading of our 2009 financial year commodities export income by $22 billion, or 10%, by ABARE, the government’s principal commodity forecaster.
The estimate might have to be increased if yesterday’s news from Queensland is any indication with $2 billion (annual rate) in lost sales and production revealed by Xstrata and Macarthur Coal.
ABARE said returns for iron ore and coking coal would be higher until March 31 under the current contracts with higher prices, and then prices will fall, while volumes will be under continuing pressure.
"The outlook for steel and steel-making raw materials has deteriorated in the past three months," ABARE said.
"The global financial crisis has led to a decline in investment and consumer spending in the world’s largest economies.
"In particular, the United States, the European Union and Japan are now in recession and economic growth in China has slowed. Consequently, global construction and manufacturing activity, which is the primary end use for steel, has weakened.
"The weakening world steel market has reduced global demand for iron ore and metallurgical coal, Australia’s two largest export earners."
Xstrata revealed that its local coal division had suspended operations and cut 230 jobs at its Okay Creek coking coal mine in Queensland.
“The suspension of long wall operations is in response to reduced market demand and sales for hard coking coal, resulting from the continuing global economic crisis and downturn in the steel and manufacturing industries,” the Swiss based company said in a statement yesterday.
The Okay Creek No. 1 mine, part of Xstrata’s Okay Creek complex in central Queensland, produced 6.2 million tonnes of coal last year, out of a total 11 million tonnes from the various mines in the area.
That’s a huge cut in revenue: around $1.8 billion: the Macarthur cut, based on around 850,000 tonnes of lost sales, will be upwards of $180 million.
“We remain committed to meeting our customer needs from stockpiles,” Ian Cribb, chief operating officer of Xstrata Coal Queensland was quoted as saying in the statement.
Mr Cribb said customer needs will be supplied from stockpiles and the continuing operation of the Okay North longwall
Macarthur Coal, the world’s biggest producer and exporter of pulverised injection quality coal has taken a bigger axe to its business, with the dividend also suspended.
The market hated the news, sending the shares down more than 22% to a new closing low of $2.70 (and an intraday low of $2.66).
Macarthur cut its first half by as much as 53% and reduced its sales estimate after customers sought to defer shipments because of slumping steel demand around the world.
Three of its biggest shareholders are among its major customers: the giant ArcelorMittal the world’s biggest steel group which has cut steel production by 30%-35% this quarter, Posco of South Korea which has also cut output sharply and the big Chinese commodities group, and Citic, which has just bailed out its Hong Kong arm with a $US2 billion loan after it got into trouble with foreign exchange contracts over the Australian dollar that went bad. Arcelor asked to suspend shipments this quarter because of its production cut.
Some of these companies bought their Macarthur shares for around $18-$20 each.
Macarthur said that profit for the current half ending December 31 may be between $75 million and A$125 million against the forecast a month ago of between $150 million and $160 million.
The company “has experienced a sudden and unprecedented reduction in coal sales as a result of postponement of coal shipments by some customers,” the statement said.
“There is considerable uncertainty as to future movements in demand and when recovery will take place.”
Macarthur will suspend its interim dividend and will consider a final dividend at the end of the 2009 fiscal year after June 30 next, the company said.
Production from its Moorvale and Coppabella mines in Central Queensland will be reduced, resulting in a 22% fall 2009 financial year sales forecast to 3.9 million tonnes.
Chairman Keith De lacy said in the statement: “We are confident there will be a recovery in coal demand although we cannot predict when that is likely to happen. We are acting now to manage cash flow and costs in order to weather the current storm.”
The company said that the November profit guidance was subject to achieving the budgeted shipping schedule which has now been impacted by the recent central Queensland coal ports.
"The revised hal
