Canada's Teck Cominco, the world's second-biggest coal exporter, will slice up to 20 per cent of its production of the commodity due to slowing global steel production.
The company will eliminate 1,400 jobs, or about 13 percent of its workforce, to cut costs amid a decline in metal prices.
The cuts, expected to save C$85 million ($70.9 million) a year, will result in a charge of about C$35 million in the first quarter, Vancouver-based Teck Cominco said today in a statement. The “majority” of the dismissals will be completed in the first quarter, the company said.
Teck joins Alcoa Inc., U.S. Steel Corp. and other commodity producers in lowering output as the global economic crisis reduces demand for energy and materials used in construction and automobiles. Zinc for delivery in three months on the London Metal Exchange fell 49 percent last year.
“Given continued economic uncertainty, a significant reduction in our workforce is needed to further reduce costs and position Teck for both short and long-term competitiveness,” Chief Executive Officer Donald Lindsay said in the statement.
Teck said it will reduce coal output to 20 million tons this year. Greg Barnes, an analyst at TD Newcrest Inc. in Toronto, said in a note to clients today that Teck’s coal units produced about 23 million tons last year and that he had previously expected the company’s 2009 output to be about 21 million tons.
Teck is trying to repay debt from the October purchase of Fording Canadian, which produces coal used in steelmaking. The loans total $9.8 billion, about three times Teck’s C$3.67 billion ($3.11 billion) market value.
Teck said on Oct. 22 that prices booked in the third quarter fell to $245 a ton from $275 earlier in the year.
With analysts saying more cuts will be needed to balance an expected global surplus, the move shines the spotlight on BHP Billiton, whose Queensland and Illawarra mines make it by far the world's biggest coking coal exporter.
BHP has been quiet on whether it will have to cut coking coal production, so far not joining other Queensland miners Rio Tinto, Peabody, Macarthur Coal and Xstrata in slicing production.
"We expect that major steel production cuts will carry on over through the first half of 2009 and the impact will be that demand for global seaborne traded coking coal in 2009 will be about 7 per cent lower than 2008," said Credit Suisse analyst Ralph Profiti. "It is clear to us that producer response will be inevitable."
Coking coal is Australia's biggest export, with the Australian Bureau of Resource Economics estimating it will bring in $40 billion of revenue this year.
However, that number is expected to fall with output cuts and an expected 50 per cent, or more, drop in contract prices.
This week, Rio Tinto and Peabody announced coking coal production cuts from their Queensland mines, joining Xstrata and Macarthur Coal, which made similar announcements a month earlier.
BHP is capable of producing more than 60 million tonnes a year from its coal joint ventures.
Until last month, Queensland's mines had been relatively insulated from nearly 5000 job cuts being seen at base metals and iron ore mines in Western Australia and NSW.
Sources: Bloomberg, The Australian
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