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Stanmore Coal steels for export cuts

Stanmore Coal has slashed its earnings guidance on the back of deferred deliveries for coking coal used to make steel.

Stanmore Coal has slashed its earnings guidance
Stanmore Coal has slashed its earnings guidance

Coking coalminers are bracing for the delay or cancellation of shipments as Australia’s biggest customers idle blast furnaces and cut steel production due to the coronavirus crisis, as Stanmore Coal slashed its earnings guidance on the back of deferred deliveries.

Stanmore Coal said on Monday its metallurgical coal customers had deferred delivery of the company’s June output, or about 250,000 tonnes of the steelmaking ingredient, cutting the entire month’s revenue from its earnings outlook.

Stanmore cut earnings guidance by $12m-$15m, saying it expected underlying earnings before interest, tax, depreciation and amortisation of $80m-$85m, down from $92m-$100m.

It blamed the downgrade on the impact of COVID-19, saying “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”.

Stanmore said the tumbling coking coal price, which it says has seen its benchmark coking coal index fall from $US163.50 a tonne in mid-March to $US118.50 on Friday, would also have an impact, but it would not be material as its June quarter sales prices were largely locked in place.

“As a result of fewer tonnes being sold as well as measures put in place by the company and its suppliers to manage the impacts of COVID-19, unit costs per tonne are expected to increase slightly above guidance of $107 a tonne sold, ex royalty, to $109 a tonne sold,” Stanmore said.

It is understood the customers were from Japan, South Korea and India. About half Stanmore’s coal is contracted to customers in Japan and Korea, according to the company’s investor presentations, and the company has been expanding its business with Indian steelmakers.

While Stanmore is the only major exporter to so far disclose shipment delays, its situation looms for other major exporters.

India, Japan and South Korea collectively took about 55 per cent of Australia’s metallurgical coal exports in the 2018-19 financial year, according to the Department of Industry, Science, Energy and Resources, with China buying 22.4 per cent of the 183 million tonnes of coking coal exported that year.

India was Australia’s biggest metallurgical coal customer, taking 47 million tonnes, or 25.6 per cent of the nation’s total output, with Japan taking 35 million tonnes (19.1 per cent of output) and South Korea 18 million tonnes (9.7 per cent). The steel industry in all three countries is struggling with the coronavirus crisis causing turmoil, with flow-on impacts to the coking coal markets now becoming stark, even though China’s industrial heartland is returning to normal.

The latest World Steel Association data shows Indian steel production fell almost 14 per cent in March, compared to the year before, with Japan’s production down 9.7 per cent and South Korea’s down by 7.9 per cent.

Taiwan’s steel industry, which bought 11 million tonnes of coking coal from Australia in 2018-19, or 5.8 per cent of the total exports, cut production by more than 22 per cent, association figures show.

Stanmore is the subject of a $1-a-share takeover bid from its major shareholder, Indonesia’s Golden Investments, and is expected to release its target statement and independent expert report on the offer within days. Golden’s offer is unconditional, but is still mulling its reaction to Stanmore’s April 17 decision to launch a bonus share issue.

Stanmore closed down 2c at $1.

Nick Evans
Nick EvansMargin Call Columnist and Resource Writer

Nick Evans has covered the Australian resources sector since the early days of the mining boom in the late 2000s. He joined The Australian’s business team from The West Australian newspaper’s Canberra bureau, where he covered the defence industry, foreign affairs and national security for two years. Prior to that Nick was The West’s chief mining reporter through the height of the boom and the slowdown that followed.

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Original URL: https://www.theaustralian.com.au/business/mining-energy/stanmore-coal-steels-for-export-cuts/news-story/37d5dd7486fa38eab343b82d4b82c63c