Rio Tinto and Peabody Plans to Reduce Coal Production

Rio Tinto (RIO), a multinational mining and resources group and Peabody, the largest private-sector coal company in the world has announced that they are going to cut the production of coal as a result of the fall in demand. Peabody has revealed that it will cut the cooking coal production in Australia by 20% and Rio Tinto has said it would cut its output by 6% and workforce by 50%.

Spokeswoman of RIO said that the company is planning to cut 500000 tonnes or 15%, of annual production at its Kestrel mine in Queensland which is equal to 6% of the companies total coking coal output, based on third-quarter production rates. "Negotiations will take place at a time when steel prices are weak, buyers are holding excess coal inventory, and the onus is on scaling back hot metal production and controlling costs," Goldman Sachs JBWere analyst Malcolm Southwood said.

Peabody said yesterday its US coal production, largely for domestic power generation, would be 190 million to 195 million tonnes, down from about 200 million tonnes in 2008. St Louis-based Peabody said Australian shipments, from five mines in Queensland and six in NSW, would probably decline to 22 million tonnes from about 24 million last year - with metallurgical coal production expected to fall by up to two million tonnes.

There is no announcement from BHP Billiton (BHP), the largest producer of coal regarding its plan on production cuts. It is expected that the company will have less exports when compared to the last year as Indian purchasers are neglecting to buy contracted allotments. A Goldman Sachs JBWere analyst, Malcolm Southwood, commenting on the situation said “However, as with most of our commodity price assumptions, we attach downside risk to our base case forecast”.