July 17, 2019 / 8:15 AM / a month ago

BHP aims to cut thermal coal output for next year, raise quality

MELBOURNE (Reuters) - The world’s biggest miner, BHP Group, on Wednesday said it planned to produce less thermal coal in the coming financial year and that it would wash it instead as part of a drive to raise the quality of the commodity.

FILE PHOTO: Visitors to the BHP (formerly known as BHP Billiton) booth speak with representatives during the Prospectors and Developers Association of Canada (PDAC) annual convention in Toronto, Ontario, Canada March 4, 2019. REUTERS/Chris Helgren/File Photo

BHP said its New South Wales Energy coal production would fall as much as 18% to between 15-17 million tons next year, down from 2019 levels of 18 million tons.

The lower production will come after BHP optimized its mine plan “to focus on higher quality products”, it said in its latest quarterly production report.

Thermal coal, used as fuel for power plants, can be processed to increase its energy content, boosting the value of the final product and cutting carbon emissions. The process can turn thermal coal into a semi-soft coking coal which then feeds steel producers.

BHP’s Australian thermal coal operations include the Mt Arthur open cut mine in the Hunter Valley region of New South Wales, which supplies domestic and international customers.

AME Group analyst Lloyd Hain said that coal from BHP’s Mt Arthur operation is typically lower-grade coal, with an energy content rating of 5,500 kilocalories per kilogram (Kcal), such as is often bought by China.

“They (BHP) are trying to diversify out of their current market, and there is potentially more price upside for (higher grade) thermal coal,” he said.

Raising the energy content to 6,000 Kcal would allow BHP to sell to markets like Japan and South Korea, which would improve the value of Mt Arthur if BHP were to decide to sell the asset, Hain added.

BHP is not the only miner seek to move away from lower-grade, lower-priced thermal coal.

Yancoal Australia said in its quarterly report late on Tuesday that it “continued to optimize” its split of thermal and coking coal sales “to meet the market demand and maximize prices”.

Yancoal sells to Japan, South Korea and China, each representing 22% of total sales volume or less. It said that “the impediment to Australian thermal coal deliveries into China continued to influence the regional market” in the June quarter.

Australia’s thermal coal exports to China have fallen this year as political tensions flared between the countries after Australia banned China’s Huawei from participating in the build-out of Australia’s 5G telecommunications network.

Elsewhere, Whitehaven Coal said on an analyst call last week that it was looking to wash more thermal coal from its Maules creek operations to turn it into semi-soft coking coal, which it has been successfully trialing with Indian steelmakers.

Reporting by Melanie Burton; Editing by Kenneth Maxwell

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