No one in the coal business needs to be told how dire trading conditions have become with a flood of surplus material swamping demand and drowning the price, especially for thermal coal.

Hope that drastic action could be avoided by strong growth in the Chinese economy is fading and India is behaving like it has the past, promising much and delivering little.

Currency values are also not moving in favour of exporters with the Australian dollar refusing to do what everyone has been predicting by dropping a significant amount for a sustained period.

Adding to this poisoned cocktail there is the problem of the collapsed oil price which might not seem to have much to do with coal except that it does effectively lower the price for all forms of energy because oil is the global energy benchmark.

If there’s any compensation for the coal industry from what’s happening across the energy sector it is that the cocky crew trying to force government-subsidised renewables onto consumers are also having a horrid time peddling their products.

In China, which has been the buyer of last resort for coal there are worrying signs of a continued slowdown in growth, complete with predictions that it is about to travel the same route as Japan did after its boom years and slip into a long period of stagnation which will add to the problems being caused by limits on coal use near its major cities.

It was against that background that Glencore, the country’s biggest coal miner, said it would unilaterally slice 15% out of its annual production, a target which effectively means the removal of 15 million tonnes of coal from the system given the company’s output last year of 98mt.

Four signals are being sent to the rest of the coal industry, and to coal customers, by Glencore’s proposed 15% cut in production. They are:

• It sees no point in producing coal that it will be sell at a loss;
• It can’t see a rapid recovery in the current coal-market conditions in which excess supply is a bigger problem than demand;
• It is telling the rest of the industry that it’s the leader and should be the first to receive a mine merger proposal; and
• As the top Australian thermal coal producer it is telling customers that they could face a coal shortage in the future if they press too hard on price.

In reverse order, if only because that last point is most interesting, there is speculation that Glencore is indulging in a classic marketing ploy by the company’s master trader, CEO and biggest shareholder, Ivan Glasenberg.

According to Macquarie Bank the proposed 15% production cut “wouldn’t seem to be purely economics driven”

What the bank sees is a negotiating position being staked out by Glencore as heads into contract talks that coincide with the start of the Japanese financial year on April 1.

“Logically, Japanese utilities will be more inclined to settle a higher price (and potentially larger volume) if they view supply security and quality to be at risk,” Macquarie said in a commodities note earlier this week.

If that view is right then it seems unlikely that the full 15Mt will disappear from the market, as threatened by Glencore.

Macquarie could be right in its “marketing ploy” view of the Glencore threat but it would be wise to see the planned 15% cut as more than a business strategy because current conditions are so tough that something drastic is required.

That’s why a fresh wound of corporate and pit mergers seems the next logical step in the long-running crisis which has already cost 13,000 Australian coal workers their jobs.

Glasenberg’s comments about not producing coal at a loss is a sign that he is not interested in “cannibalising” Glencore’s own business by producing more coal than the market can absorb.

It also means that he is determined to build on Glencore’s position as the world’s leading producer of seaborne thermal coal and equally determined to emerge as the price setter once the current supply glut is absorbed.

For smaller coal producers, or those showing signs of losing interest in coal such as Rio Tinto which is downgrading the importance of coal in its corporate structure, Glasenberg is making Glencore the merger partner of first choice – at his price, of course.