Climate Change Is Squeezing Glencore’s Coal Business
Europe’s Dying Coal Industry Is Forcing Even Glencore to Change
(Bloomberg) -- Climate change and rock-bottom gas prices are taking a toll on Glencore Plc’s coal business.
The world’s biggest coal shipper cut the value of its Colombian business -- which mostly sells to Europe -- by almost $1 billion as it adjusts to the struggling market. It also plans to stop mining coal in Colombia in next 15 years.
The announcement is another example of how Europe’s dwindling demand for coal is reshaping the global energy industry as politicians pledge to make Europe the world’s first climate-neutral continent and phase out fossil fuels. A glut of natural gas, along with a milder winter, and higher costs for carbon-emissions allowances, has tilted the economics of generating electricity away from coal and toward using more gas.
Investors are also piling on pressure over climate change impacts and last year Glencore agreed to cap coal production. But it’s the economics that are proving decisive.
“The Atlantic coal market, I don’t see a big recovery,” Chief Executive Officer Ivan Glasenberg said on Tuesday. “It’s clear the amount of coal being consumed in the Atlantic is decreasing.”
Glencore shares slumped 4.7% on Tuesday.
To be sure, Glencore remains committed to its highly profitable coal business. The company’s Australian mines are some of the best in the world and feed directly into Asia.
Under billionaire former coal trader Glasenberg, the company has been a staunch defender of the fuel saying it’s essential to providing affordable and reliable power in developing countries. The commodities giant says demand will keep growing for years as countries such as China, Vietnam and India continue to roll out new coal power plants.
“The world still needs coal,” Glasenberg said on Tuesday. “We will remain in the business while the world requires this lower-priced energy.”
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The collapse of European coal demand is not just a headache for Glencore.
BHP Group, the biggest mining company, is looking to exit the business. One of its assets is Cerrejon, a mine in Colombia it owns with Glencore and Anglo American Plc. In the current market, there are few natural buyers.
Anglo is also planning to get out of thermal coal mining in the next few years. The company may have missed the opportunity to get the best price for its business, CEO Mark Cutifani said earlier this month.
“It would be easier to take a step in one hit, but you have to work with governments, you have to work with employees, you have to work with local communities,” Cutifani said. “But the process is more important to us long term.”
For now, Glencore has no plans to follow its rivals and quit coal, not even its struggling Colombian mines.
“As long as they continue to generate a return, then we’ll continue to deplete those resources,”said Chief Financial Officer Steven Kalmin.
To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net
To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Liezel Hill
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