Sunny days for some thermal coal producers as they bask in super profits

After a number of lean years, the sun is again shining for some thermal coal producers, as profits roll in at a heady rate that could easily be mistaken for another commodities boom.

Take Glencore for example. In delivering his company's exceptional 2017 results this week, Glencore's CEO Ivan Glasenberg said: "Our performance in 2017 was our strongest on record, driven by our leading marketing and industrial asset businesses."

Zeroing in on the financial performance of Glencore's global coal operations shows it pulled in revenue of $9 billion last year, up 39% from $6.5 billion in 2016.

Its thermal coal sales volume dominated by Australian production rose just 1%, however, to 106.3 million mt from 105.7 million mt in 2016. The revenue figure excludes earnings from the company's coal purchasing activities.

Thermal coal was a standout performer for Glencore in terms of earnings before interest, taxes, depreciation and amortization with its Australian mines notching up $2 billion in EBITDA for 2017, a jump of 50% on $1.33 billion in 2016.

Strong seaborne thermal coal prices drove Glencore's increased earnings from thermal coal, helped along by a 30 million mt increase in demand from  the Asia-Pacific market last year, and strikes and poor weather in Australia, the company said.

BHP too announced its latest results in a presentation this week, albeit for the shorter six-month period ended December 2017, but it was less impressive for coal.

Earnings before interest and tax for BHP's largely Australian coal business unit were $1.4 billion for the 2017 half year on revenue of $4 billion, but in the corresponding 2016 half year period pre-tax earnings were higher at $2 billion and revenue was about the same at $3.9 billion.

Clearly, not all thermal coal producers are enjoying bumper profits from their operations in Australia.

BHP is exercising tight cost control to safeguard profit margins for its thermal coal operations in New South Wales.

It now has a unit cash cost of production of $46/mt, excluding royalty taxes and freight costs, according to a company presentation accompanying its latest results.

Aside from cost control, supplier discipline and healthy Asian demand, could other X factors be at play for Australian thermal coal that are supercharging some miners' businesses to produce super profits?

Glencore highlighted in its earnings report for 2017 its acquisition last August of a 49% interest in Yancoal Australia's Hunter Valley Operations.

Prior to Yancoal, this asset was owned by Rio Tinto, and as one of the largest thermal coal mines feeding the Newcastle supply chain it was arguably the crown jewel of its now mostly sold off Australian coal business.

Interestingly, prices for spot-traded thermal coal shipped from Newcastle port -- the export's main trading hub in Australia -- started to rise sharply from November and have topped out at $110/mt FOB for the 6,000 kcal/kg NAR grade this week.

Furthermore, it appears the FOB price for this grade at Newcastle port is trading at around the same level as it would cost to ship 5,500 kcal/kg NAR Newcastle thermal coal to Japan, including seaborne freight costs, as represented by S&P Global Platts NEAT coal index on a 5,750 kcal/kg NAR basis.

Rio Tinto's almost completed exit from Australian thermal coal and the withdrawal of others such as Brazil's Vale has left behind a market serviced by fewer coal producers, some of which have grown into titans.

A question for the market and for many buyers of Australian thermal coal to think about: Will mega profit announcements from some thermal coal producers become a regular event for years to come?