Miner Teck Q3 met coal sales fall 17%; demand rises in China

London — Canadian miner Teck Resources said it sold 5.1 million mt of metallurgical coal in the third quarter, 17% lower than a year earlier, and similar to the second quarter, as the unit swung to an operating loss.

Teck, the world's second-largest seaborne met coal producer, expects higher sales of 5.8 million-6.2 million mt in the fourth quarter, the Vancouver-based miner said in a Oct. 26 report.

The company sees increased demand in China and other markets, and believes global demand, eventually, should be unaffected by ongoing China/Australia met coal trade restrictions.

Improved sentiment and outlook for steel and coking coal, combined with concerns about potential weather-related production disruptions in Australia, are expected to lead to increased met coal trade activity, Teck said.

"A number of Chinese contract and spot customers have inquired for availability of prompt cargos for delivery in the fourth quarter, which we are reviewing in light of adjustments to production plans made earlier this year to manage through the pandemic and the five-month planned shutdown at Neptune Bulk Terminals that ended in September," Teck said.

Teck said its customers and market sources reported China had "heightened seaborne import restrictions effective October for an undefined period."

"While there has been no official announcement, the restrictions appear directed mainly toward Australian coal," Teck said.

Teck and other met coal mines have seen seaborne spot prices fall this month, with S&P Global Platts Premium Low Vol index dropping 25% since the start of October through to Oct. 23, following trade in several prompt cargos at lower prices.

"Despite Chinese steel production running at a record high levels and demand for steelmaking coal improving in the rest of the world as economies continue to recover, changes in seaborne steelmaking coal trade flows are impacting steelmaking coal pricing adversely while cargoes are redirected," it said.

China continued to increase steelmaking coal seaborne imports to mitigate lower Chinese domestic production and lower imports from Mongolia through the third quarter, it added.

Outside China, while the COVID-19 pandemic continued to hurt demand for met coal in the third quarter, demand started to improve over the second half of the quarter, Teck said. A number of steel producers that had deferred purchases began restocking raw materials in preparation for blast furnace restarts and increased levels of steel production expected in the fourth quarter, it said.

"We expect steel producers outside of China to increase production in line with improved demand for their products in the fourth quarter as economies start to reopen and some previously idled steel plants return to production," Teck said.

Teck produced 5.1 million mt of met coal in the third quarter, down from 6.5 million mt a year earlier.

Planned mining and production outages in the quarter corresponded with anticipated reduced demand related to COVID-19, it said.

Loss

The met coal business in the third quarter reported a gross loss after depreciation and amortization of C$63 million ($47.8 million), from a C$425 million gross profit a year earlier.

The company sold met coal at an average $102/mt FOB in the third quarter, down from $156/mt FOB in Q3 2019, with sales volumes within the company's earlier guidance, it said. Platts PLV index averaged $114.75/mt FOB Australia in the third quarter.

Met coal unit costs, including transportation and inventory adjustments, rose to C$113/mt or $85/mt, from C$107/mt in Q3 2019, the company said.

Teck reiterated production guidance for the second half of 2020 at 11 million-12 million mt.

Teck said it continues to maintain an annual production capacity of 26 million-27 million mt/year, from four coal operations in the Elk Valley.

Teck said that with the closure of the Cardinal River Operations and the expansion of the group's Elkview Operations completed in the first half of 2020, the company will benefit from a structural shift lower in the cost base.

Teck expects adjusted site cash cost of sales in the second half of 2020 to be between C$60-C$64/mt.

Higher costs of sales in the first half of 2020 due to logistics and the impacts of COVID-19 will be offset by cost reduction efforts and mine production curtailments through temporary shutdowns in the second half, it said.

Teck expects adjusted site cash cost of sales in 2021 to be in line with H2 2020, reflecting the structural shift down in costs.

Transportation costs in H2 2020 are expected to sit in a range of around C$39-C$42/mt, also in line with Teck's previous guidance.