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BHP bullish on coal demand, but says prices to remain weak

Dean Dalla Valle. (Image courtesy of BHP Billiton)

World’s No. 1 miner BHP Billiton  (ASX, NYSE: BHP) (LON: BLT) said Wednesday it expected demand for coal to keep growing over the next 20 years, despite prices are likely to remain low for a while, as a consequence of oversupply.

Speaking at The Committee for Economic Development of Australia (CEDA) in Brisbane, the company’s coal chief, Dean Dalla Valle, said he expects most demand growth to come from outside China, which has been the primary driver of global commodity prices in recent years. The nation currently accounts for about 50% of the world’s coal consumption.

“Over the next couple of decades we expect global growth in demand for both energy coal and metallurgical coal,” he said. Although “the likes of India, a country not overly endowed with metallurgical coal, [is] anticipated to be the most significant source of new demand” for coal used in steelmaking, Dalla Valle added.

When it comes to prices for the commodity, however, the executive provided a rather grim outlook, as China, the US, Canada and Russia have been flooding the steel-making market, and new player Indonesia has swamped the energy market, causing prices to plummet.

“It’s tough out there. It’s hard to see any relief in the short term certainly when you have such strong supply,” he said.

BHP bullish on coal demand, but says prices to remain weak

Aussie miners 50% more expensive than abroad

Adding to the coal market’s difficulties Dalla Valle revealed that some of his Australian workers cost 50% than their American equivalents, which results in high operational costs.

The adjustment to lower coal prices and higher costs, he noted, has been difficult for both Queensland and New South Wales operations, with job losses impacting the sector and related flow-on effects for supporting industries and the local economy.

“Over the past 18 months we have focused on our cost base throughout our operations and there is still more we need to do as we continue to look for ways to improve the productivity and competitiveness of our mines,” he said.

Unfortunately coal miners’ troubles seem far from over, according to experts such as Macquarie Research, which predict the lowest thermal coal price settlement between Australian producers and Japanese customers since 2009 is around the corner.

BHP has highlighted coal as one of its “four key pillars,” alongside copper, iron ore and oil, which it believes will give it sufficient diversity to whether each phase of the economic development cycle.