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Depression-Level Collapse In Demand: In Historic First, Glencore Shuts Coal Mines For 3 Weeks
In a historic move showing just how profound the collapse in global commodity demand and trade is, earlier today the Sydney Morning Herald reported that Australia's biggest coal exporter Glencore, which last year concluded its merger with miner Xstrata creating the world's fourth largest mining company and world's biggest commodity trader, will suspend its Australian coal business for three weeks "in a move never before seen in the Australian market, to avoid pumping tonnes into a heavily oversupplied market at depressed prices." Putting this shocking move in context, it is something that was avoided even during the depths of the global depression in the aftermath of Lehman's collapse, and takes place at a time when the punditry will have you believe that the US will decouple from the rest of the world and grow at 3% in the current quarter and in 2015.
"This is a considered management decision given the current oversupply situation and reduces the need to push incremental sales into an already weak pricing environment," the company said.
Glencore chief Ivan Glasenberg
For those who don't recall some of the more paradoxical moves in the Australian commodity space in recent months, Glencore is not only the dominant coal exporter in the global coal market, but one which has continued to raise its thermal coal output in Australia and push its coal business towards a new production record this year, even as prices for the commodity crashed to five-year lows. Thermal coal is selling for about $65 a, about half of the $120 price from three years ago.
Said oterhwise, Glencore took the first and only page out of Amazon's playbook and has been pumping excess production in hopes of crushing marginal prices to the point where its competition goes out of business.
Unfortunately, things are not working out as expected and earlier today Glencore surprised the market by saying it would shut its Australian coal business for three weeks, starting mid-December, shaving about 5 million tonnes of output.
As SMH notes, "while it is understood Glencore's overall Australian coal business is the black, the size and length of the shutdown is unprecedented and suggests a level of financial distress at some of its mines."
Glencore owns 13 coal mines in NSW and Queensland
So in a completely unshocking turn of events, rushing to create the biggest loss possible finally backfired on the company itself.
Staff will be forced to take three weeks paid annual leave as a result of the suspension. Glencore has 13 Australian mine complexes, including about 20 mines and employs about 8000 staff.
Still, in a world in which non-GAAP appearances are all that matter, Glencore was quick to put some lipstick on this historic pig:
On a tour of its Australian operations in September, Glencore told analysts that its coal output this calendar year would be 14 per cent greater than in 2012. Glencore also has a series of brownfield expansions in the pipeline. Glencore stressed its positive outlook for coal in the medium term, when it tips the "supply and demand balance will be restored".
Odd how it is always about the "medium run" where companies are optimistic, never the short run, especially when they suddenly find themselves in what can only be classified as a global depression in commodity demand.
And now that Glencore is finally facing the music, the question is whether the other two majors who also took the beggar-thy-competitor route to prosperity, BHP Billiton and Rio Tinto, who Glencore chief Ivan Glasenberg "has attacked for dramatically expanding production in the face of falling iron ore prices" will follow suit or merely double down making Glencore's pain that much more acute.
Mr Glasenberg's criticism of Rio Tinto and BHP for their massive iron ore-expansion programs raised the eyebrows of some in the market, given Glencore had been running its very own coal expansion in the face of falling prices.
Mr Glasenberg has repeatedly attacked the price impact of the expansion strategies being used by the iron ore majors, as part of his attempt to pitch a $190 billion "merger of equals" with Rio.
The rest of the story is familiar: crush the competition by flooding the market with ever cheaper commodities:
Glencore is forecasting total managed coal production of 168 million tonnes in the 2014 calendar year, beating a previous record of 157 million tonnes set last year. However, that will be lower, given the December suspension of its Australian coal operations.
Glencore's total managed production in Australia is forecast at 94 million tonnes this year, up on 81 million tonnes last year, as its new Clermont thermal coalmine, in central Queensland, comes online.
And therein lies the paradox: by adopting what is ultimately a self-destructive practice, the iron-ore majors, facing crumbling global demand, are merely accelerating the deflationary pressures facing not only iron but all other commodities, as they seek to flood the world with excess production and put producers who cost of production is below the margin price out of business.
Something which Saudi Arabia is also allegedly doing to its US shale-based competition.
The only thing that is certain is that absent some massive global reflationary spark, many companies are about to go out of business. And should it be someone as massive and prominent as Glencore, the global deflationary wave will only acclerate further, leading to an even faster slow down in global growth, until finally decades of excess capacity and production find their new equilibrium with an epic slam, one which may involve yet another round of global taxpayer-funded bailouts.
For now, however, keep a close eye on Glencore, which may just be the canary in the coalmine. No pun intended.
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No way Hussein Obola thinks. He got his script from his handlers. No need to think, he can go and play golf, then later play according to the given script.
Iron ore is massive in Australia, Western Australia particularly. The scale of just Rio's operations has to be seen to be believed. It will be a black day if operations even slow.
Soooo, this won't hurt Perth Realestate will it? my agent says things are still going up here?
You bet. That's if the mines slow down.
Sell!
Never bought.
Shhiiiiiiiiiiiiit. Agents in Detroit would tell you prices are going up.
Know a guy who runs a mining construction and maintenance company. They had over 100 guys on two years ago. They've got a dozen now.
Rio and BHP will run the marginals out of business, probably even FMG and Gina the Hutt's new project. Soon that old cow will be begging the government to bring slaves in.
Worked as part of BHP's RGP4 at Yandi. Was right next door (literally the next tenament across) from Rio's. I've got an old video somewhere of the trains heading to port... goes for 3 or 4 minutes of just carriage after carriage... over 3kms of train!
There is absolutely nothing wrong with burning coal for energy. We need to divest ourselves from the envirowackos by ANY MEANS NECESSARY.
Sarc on?
No sarcasm. You are typing on a pc connected to the internet right?
No possible unless we mine the earth. You can shove your solar dreams up your ignorant ass fktard.
You seem kind of bitter. Did a greenie f** your mother? Of course they did.
yes, fuck those green socialist cunts !!!!!
I disagree, that pun was intended.
It wont be a bad winter in california...NOAA says the drought will intensify
If only we could convince countries to burn more coal instead of these evil green energy projects, after all Abbott has said coal is good for humanity.
http://www.abc.net.au/news/2014-10-13/coal-is-good-for-humanity-pm-tony-...
abbott is a big eared baboon/buffoon that doesn't do much for OZ at a time when OZ needs all the help it can get
http://www.dailymail.co.uk/news/article-2835427/Hello-m-Tony-Australian-...
http://www.buzzfeed.com/markdistefano/abbott-indigenous-bush-comments
Grandchildren are disappearing .
http://data.worldbank.org/indicator/SP.DYN.CBRT.IN/countries/1W?display=...
Crude birthrate is falling about 5% per 7 years .
This will render humans extinct in about 26 years. (about 2040 ) .
They will be extinct long before that for other reasons .
I think your extrapolation machine is defective.
http://www.youtube.com/watch?v=-Hj3LGvWWLU#t=386
Extinct? Look up the meaning of the word. Humanity extinct by 2040? What about all those of who will be under 40 in 2040? So the all mighty powers that be plan the extinction of the human race, in other words, suicide?
Your video is on population control, but not extinction.
If only the GOLD and SILVER producers were prescient enough to do this...!
Deflation should be great the the general public and for bond holders. Except, it might accelerate the onset of the ice age.
These giants in the commodity space know something. When it gets into cashflow negatives, you stop the haemorrages. Nothing new if you kick tires and you'll find that many more marginal players in the commodity space already in negative cashflow territory. Those who are kicking are largely domestic crony infested operations hooked onto state subsidies.
The reverabating effect is on the supporting services. The asset heavy owners in the distribution system is most vulnerable to negative cash flow. The whole global chain has to trim down. A manifestation of the global deflationary force.
All these have not been reflected in the financial market of papers yet further fueled by money printing. This shall go on until the paper market implodes. Not difficult to discern the eviscerating papers - it lies with illiquid papers (eg EM papers).
WTF? Is Zero Hedge " zombie ville?"
Burp--splat---puke-- EBOLA
Bitchez :-D
Well it is getting late.
China has decided to make a shift to Russian Natural gaz and in so doing introduced tariffs on imported coal. China is not stupid and is concerned about the proliferation of cheap coal fired plants that increase emissions so they are making it more expensive to use coal. Seems reasonable considering serious emissions problems in all Chinese cities. How could Glencore have missed this political shift away from coal? That is the real question???
Childhood blinders come to mind.
China's recent decision to introduce coal tariffs on imported coal has NOTHING to do with importing Russian Natural gas. China's natural gas deal with Russia won't deliver anything till 2018. The tariffs are all about protecting local miners and nothing more. China is still building a new coal powered power plant every week. No slowdown yet in sight. But they certainly do intend to eventually shut down old coal power plants once natural gas deliveries start to provide them with a new source of energy to add to their portfolio.
They don't call it supply and demand for nothing. It's never demand, if it's an issue dealing with the recovery from our depresson until it is and then quite suddenly shit hits the fan.
Glencore is a dogs*it company if there ever was one.
no tears for these sobs
didn't china just raise the import duties on imported coal to save its local miners?
A refresher re effects of China coal tariff: http://www.zerohedge.com/news/2014-10-11/game-over-aussie-coal-china-lev...