That observation, obviously, requires an explanation but as a quick heads-up what it means is that the worldwide coal industry is doing more damage to itself by over-production than anything caused by government regulation or the publicity stunts of anti-coal protestors.
Fightback, the campaign launched by the Minerals Council of Australia, is all about taking the fight to the protestors or, as one headline writer put it, “muscling up to activists”
There is, from The Hog’s perspective, much to commend that approach because for too long the attacks on coal have gone largely unanswered.
MCA chief executive Brendan Pearson summed up the situation when launching the Australians For Coal website when he said that: “a small number of fringe activist groups are doing their level best to undermine the sector”
What Pearson did not say, and could not say, is that the coal industry itself has been suffering from the self-inflicted wound of producing more coal than the market can absorb with the result being lower prices and coal companies teetering on the edge of a financial abyss.
Proof of that observation can be found in the latest results of the big American mining company, Arch Coal, which this week reported a loss of $US124 million for the March quarter. That deficit represents an annualised shortfall of almost half-a-billion dollars.
No company can lose money at that rate without dire consequences that start with pit closures and job losses and have the potential to end with insolvency.
No-one is saying the problems at Arch have reached a critical point, yet, but unless the company is able to flip from loss to profit in fairly short order it will be forced to make tough decisions such as mothballing more of its higher cost operations to ensure survival.
Australia’s big coal producers are facing a similar period of difficult trading with more job losses and mine closures a certainty unless conditions improve.
That is the core problem. Conditions cannot improve while the volume of coal hitting the global market comfortably exceeds demand – and that is when the game switches to one called: “low costs always win”
Arch, and Australia’s coal miners, have been tackling the coal crisis by adopting strict new productivity measures that essentially boil down to getting more coal out of the mines using less capital and fewer people.
Such an approach seems to be a reasonable way of fixing poor financial results but there is a problem with mines becoming more efficient and that lies in the fact that they are attacking the problem from two directions – cost cutting and increased production.
The first step, cost cutting, is a good one.
Increased production, though, merely adds to the world’s already bulging stockpile of coal looking for a buyer.
There is more to the problem than excess production with other issues bearing down on the wider energy industry such as rising oil and gas production when it was supposed to be falling, and competition from heavily-subsidised renewable and alternative forms of energy.
The problem can be clearly seen in the overall coal output data with global coal production rising at an almost consistent 2.5% to 3% a year, taking total output past the 8 billion tonne mark last year, compared with 7.8 billion tonnes in 2012 and 7.6 billion tonnes in 2011.
Back in 1990, total worldwide coal production totalled 4.7 billion tonnes, meaning the industry is today producing 70% more coal annually than it did 24 years ago.
Production cannot continue rising at this rate. It is not because governments and anti-coal activists dislike the material, but simply because the market cannot absorb what is being produced.
At some point, perhaps not too far away, more of the world’s high-cost coal mines will be forced to close by managers who can no longer justify to investors the ongoing and unsustainable losses.
In a way, the coal world is engaged in a giant game of “chicken” with competing coal producers looking at each other’s financial results and asking a common question: “who’s going to blink first”
