Melbourne: Glencore Plc, the world`s largest exporter of thermal coal, plans to shut its Australian mines for three weeks to help attack a crippling global supply glut that has pushed prices to 5-1/2 year lows.
The move underscores producer concerns about over-supplied coal markets and was supported by a senior industry official in Indonesia, the world`s largest exporter of thermal coal ahead of Australia.
"What needs to happen immediately is we need to follow the steps of Glencore," Bob Kamandanu, chairman of the Indonesia Coal Mining Association said. "The market has to be given shock therapy otherwise the price will remain low."
Glencore said its temporary shutdown would cut output by 5 million tonnes - 2.5 percent of Australia`s forecast 2014 thermal coal exports - although analysts said the curtailment would have little effect on the billion-tonne a year global market.
"This is a considered management decision given the current oversupply situation and reduces the need to push incremental sales into an already weak pricing environment," the company said in a statement.
Glencore has estimated that up to a third of Australia`s coal sector currently runs at a loss.
"Glencore`s competitors would see this as a very generous gesture, given they are acting alone," said Don Barnett of AustCoal Consulting. "Five million tonnes will not have much of an impact. It will help, but not much."
Thermal coal prices have retreated to $62 a tonne from double that in 2011. The largest markets for Australian coal are Japan, South Korea, Taiwan and India.
"If it`s only a three-week shutdown it probably won`t have a very big impact on price," Indonesia`s director general of coal and minerals Sukhyar told reporters in Jakarta.
Australian production of thermal coal is forecast to rise by 8 percent over the next two years to 270 million tonnes, according to government figures.
In many cases miners find it cheaper to run in the red than shut owing to "take or pay" freight contracts that require payment of haulage fees whether or not any coal is shipped.
Glencore has limited exposure to these contracts, a spokesman said.
Coal remains the most important fuel for power generation with a global share of around 40 percent, according to coal mining companies, despite concerns over its contribution to global warming.
