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Coping with Corona: How coal and power sector rise to the challenge
Sumit Maitra
Vanishing demand and lockdowns are forcing coal companies across the globe devise new ways to stay afloat by drastically cutting costs or shrinking their operations.
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But that is true for those who are not shutting down their operations altogether.
Downsizing of manpower or cutting down on their wages are easy options being resorted by many.
In India, coal mining, being largely in the hands of state-owned entities, production has continued, even flourished during the crisis while power plants, either owned by the government or heavily regulated and protected despite being in the private sector, have continued to burn coal to power up the country.
But coal mining companies in other countries, being largely privately owned, are not so lucky.
“Term customers have advised Stanmore in the past week that they will be deferring taking delivery of contracted coal shipments that they were due to take in June until later in the year. This will now cause a material deferral in revenue and earnings with no sales now forecast for June,” Australian coal miner Stanmore Coal said on April 27.
“The viral outbreak continues to adversely impact the markets in which our businesses operate. Whilst the full impact of Covid-19 is uncertain at this time due to the evolving situation, the Company expects that global supply chains will continue to be disrupted through Q3 of FY20. Accordingly, the company is taking appropriate actions to address these challenges,” Noble Group Holdings said.
For Noble, while long term contracts continue to be performed in the normal course, quarterly contracts are being delayed, and short term/spot demand contracts are being converted to just in time delivery.
“Margins on the company’s long term contracts are expected to remain within historical ranges, albeit at the lower end, and assuming that supply chains in the markets in which the company operates start to normalise during the second half of FY20, the company expects that run-rate operating income from supply chains will return to FY19 levels,” the company said.
The pandemic has forced Coronado Global Resources to temporarily idle its US operations effective April.
“The company will continue shipments to these regions (European, Brazil and US) from existing inventories of approximately 750,000 tons, which we expect will meet all current customer contractual commitments as well as deliver on potential sales opportunities,” Coronado said adding that its Australian coking coal mine will continue to operate to serve its customers in India and the Asia Pacific.
Elsewhere, coal miners like Arch Coal have drastically cut its costs, production and earnings guidance indicating the lack of clarity about how world economy would revive and when.
“In the first quarter of 2020, Arch achieved another strong cost performance in its metallurgical segment and took steps to fortify our liquidity in the face of a rapidly weakening global economy,” Paul A. Lang, Arch’s chief executive officer said.
“While our thermal segments struggled due to low natural gas prices and historically weak power markets, we are moving quickly to align our cost structure with the softening demand outlook,” he said while announcing the earnings of the NYSE-listed company.
Mining companies are resorting to risk mitigation efforts to continue operations even as several of them finding it difficult to continue operate or even survive in a scenario of falling demand and no clarity on when exactly things will improve.
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International Council of Mining and Metals, having members across 50 countries is helping its members with rapid exchange of information and knowledge to support them as they develop responses.
“We have seen members publish detailed guidance on the practical measures they have put in place across operations and further information on how they are supporting local communities. Many of our members have operations across the world and, as a result, responses are tailored to reflect government requirements. We have nevertheless seen several common approaches emerge as members work hard to keep their employees, contractors and suppliers safe,” its Chief Executive Officer Tom Butler said.
Being cash rich, many global mining companies are even funding the weaker segments of the economy.
“There are examples where members have acted to protect the supply chain by slashing invoice payment times. And numerous examples where companies have made donations to support local response efforts,” the ICMM official said.
