Rio Tinto sees coal output slow to react to prices

OREANDA-NEWS. UK-Australian mining firm Rio Tinto said that coal producers have reacted slowly to lower prices for hard coking and thermal coal.

Thermal and metallurgical coal prices continued on a weaker trend in 2014, reaching five- and seven-year lows respectively, Rio Tinto said today as it posted its 2014 financial results.

"Production has been slow to react to the new price environment, in particular in China where state-owned enterprises account for a large share of output, which combined with further cost reductions across the industry, led to lower prices," the company said.

Rio Tinto reports its financial results for its coking, thermal and uranium business under the one operating unit, known as its energy business. The unit saw a narrowing of underlying losses to \$210mn in 2014 from \$243mn in 2013. Most of the 2014 losses came from the losses incurred on the sale of its Mozambique coal assets last year.

Capital expenditure (capex) in its energy business unit fell sharply to \$224mn in 2014 from \$732mn in 2013. Rio Tinto expects its share of thermal, semi-soft and hard coking coal production this year to be 18.5mn t, 3.2mn t and 7.6mn t respectively.

Group capex is forecast to fall to less than \$7bn in 2015 and remain at around \$7bn in 2016 and 2017. Capex fell by 37pc to \$8.16bn in 2014 from \$13bn in 2013. Rio Tinto also plans to spend \$2bn buying back some of its shares.

The lower commodity prices shaved \$4.15bn off group underlying profitability in 2014 compared with 2013, with hard coking coal prices 21pc lower and thermal coal prices down by 17pc. This was partially offset by an increase in production, which increased underlying earnings by \$1.43bn in 2014 from the previous year.