By Jo Clarke

November 19, 2020 - Switzerland-based trading and mining firm Glencore may cut its Australian coal production this year and indicate a lower target for 2021 than it achieved in 2019, as expectations grow among Australian mining firms that Beijing will continue to target Australian coal imports in the new year.

Australian mining firms' confidence is waning that Beijing's import ban on Australian coal is simply import quotas filling up, with many now concerned that the diplomatic and political disagreement between the two nations could disrupt trade flows into 2021. Several key coal mining firms and industry groups are exerting pressure on politicians in Canberra to patch up the trade relationship with Beijing, although are not yet prepared to publicly confront either national government over the spat.

The uncertainty around the future of Australian coal exports to China is leading several key mining firms to reconsider production plans at operations that are losing money at current prices. The scramble is on for marketing departments to find alternate buyers but the competition is fierce and margins are being eroded, forcing firms to look at their production profiles.

Glencore has been a leader in curtailing production without closing mines in Australia in response first to the Covid-19 demand downturn and now to China's ban situation. It took around 7mn t out of its Australian operations through a 2-3 week closure of most mines during September-October because of lower demand caused by the pandemic. It is likely to join several other Australian coal mining firms in closing many mines for around two weeks over Christmas. It has announced, in its joint venture with Chinese firm Yancoal, that it will cut 84 contractor roles at the Hunter Valley Operations mine in New South Wales.

Glencore's total Australian coal production during January-September was 13pc behind the same period in 2019. This gap is likely to grow for the full year, as most of the temporary shutdown that ran across 25 September to 17 October and the impact of Beijing's ban on Australian coal come through in this year's final quarter.

A clearer indication of Glencore's position will emerge at its investor briefing on 4 December, with more curtailments likely to affect production over Christmas and into early 2021. The weather may be a major factor this year, with the Australian Bureau of Meteorology warning of a wetter than usual November-April because of a La Nina pattern that could disrupt mines, rail and ports.

Argus last assessed high-grade Australian thermal coal at $59.02/t fob Newcastle on 13 November for 6,000 kcal/kg NAR, up from a low of $46.18/t on 7 September but down from $65.70/t at the start of the year. It assessed lower grade coal at $37.63/t fob Newcastle for 5,500 kcal/kg NAR, up from a low of $35.04/t on 7 September but down from $51.52/t at the start of the year.