China’s restrictions on certain types of highly polluting coal, introduced earlier this year as part of an accelerating campaign to clean up its air, have added to a significant glut in the global market for the fuel, the mining executive said on Friday.
Coal prices have been tumbling since 2011 as cooling demand for the fuel was met by rising supplies from new mines planned when the market was booming. Price declines have deepened this year.
The value of metallurgical coal, which is burned for steelmaking, is down as much as 30 per cent from the start of 2015, while thermal coal, used in power generation, is as much as 15 per cent lower.
“Poor returns, and little indication of better times on the immediate horizon, make coal a pretty challenging business at the present time,” Mr Henry said.
“In BHP Billiton’s coal business, we made a 3% return on capital in our Australian assets last year and that’s at the good end of the industry spectrum.”
BHP is the world’s largest exporter of metallurgical coal, digging up vast quantities of the resource in coal-rich eastern Australian in partnership with Mitsubishi Corp, but also produces thermal coal.
The company, like other coal miners, has been slashing costs and striving to make its mines more efficient in a bid to safeguard profits. BHP has cut its costs by half over the past three years.
The slowdown in China, the world’s largest producer and consumer of coal, has cast doubt over coal’s future.
This week, the US Energy Information Administration said China’s past coal consumption had been underestimated, revising higher its supply and demand data for the first 13 years of this century. However, its analysis also found the world’s number two economy used up to 2 per cent less coal last year.
Still, Mr Henry fought criticism the coal industry is in terminal decline. “I am optimistic that the market will improve” eventually, he said.
There is no practical substitute for metallurgical coal in steelmaking, he said, which means prospects for that type of fuel should improve as an oversupply of steel is run down and emerging economies demand more of the material to build skyscrapers and cars.
“We expect continued growth in demand for met coal for quite a while yet, driven by ongoing economic growth in China and by the emergence of India as a major steel producing nation,” Mr Henry said on Friday.
The outlook for thermal coal is a little less clear. Environmentalists have campaigned for banks to withdraw financing from new projects at a time when climate-change policy has moved into the global spotlight, aided by President Barack Obama’s desire to address the issue as part of his legacy.
In China, rising public anger over air pollution is increasing pressure on utilities running the country’s coal-burning power plants to shift to nuclear power and natural gas.
Mr. Henry said BHP has several internal projections worked out for long-run thermal-coal demand based on a variety of influences, including emerging climate-change policies. The most likely outcome is that demand is flat, or only increases or decreases slightly, from now to 2030, rather than any wild swing one way or the other, he said.
“In all scenarios,” though, Mr Henry said, “thermal-coal demand remains a significant part of the global energy mix for decades to come.”