(Reuters) - The steel-making coal market needs to cut another 10 million tonnes of production to get into balance, the chief of Teck Resources Ltd TCKb.TO said on Thursday after the Canadian miner reported a sharp fall in profit, mainly due to weak coal prices.
Producers in the oversupplied market have already announced cuts of about 20 million tonnes but that is not enough, Teck Chief Executive Don Lindsay said. Only about 3 million tonnes of that has been implemented, with the rest expected to come into effect early next year, he added.
“With such a huge percentage of the industry operating in a cash negative basis we do anticipate that the 10 million tonnes of further reductions that we think are needed will occur. We just can’t predict the timing,” Lindsay said on a conference call.
As a result, current market conditions could persist “for a couple of quarters or longer”, he said.
Vancouver-based Teck is the world’s second-largest exporter of seaborne steel-making coal. Prices are at their lowest levels since 2007, below $120 a tonne, hurt by oversupply and lower demand from chief buyer China.
Lindsay cautioned that although U.S. and some Australian producers have shuttered production, other Australian companies have increased output.
Teck, which also mines copper and zinc, said its quarterly earnings dropped 44 percent to C$80 million ($74.47 million). But its shares rose 2 percent as the results beat market expectations, while the company trimmed its full-year cost forecasts.
“Teck is having some success reversing the higher unit costs that alarmed investors when the company provided 2014 guidance,” TD Securities analyst Greg Barnes said in a note to clients.
Teck, which in April said it would cut 5 percent of its workforce, lowered its 2014 mine-site coal cost estimates to between C$52 and C$57 a tonne sold from C$55 to C$60 a tonne. It also lowered its copper cost forecast to between $1.95 and $2.05 a pound from $2.00 to $2.20 a pound.
The miner, which is in the process of restarting its Pend Oreille zinc mine in northeastern Washington state, raised its zinc output estimate. It now expects to produce between 600,000 and 615,000 tonnes of zinc in 2014, up from 555,000 to 585,000 tonnes due to a stronger performance at its Red Dog mine in Alaska.
Teck said coal prices fell to $111 per tonne in the second quarter from $156 a tonne a year earlier. The company sold 6.8 million tonnes of coal during the quarter, compared with 6.3 million tonnes a year earlier.
The company expects coal sales to be at, or above, 6.0 million tonnes in the third quarter, ending in September.
Teck’s adjusted earnings fell to 13 Canadian cents a share in the quarter from 34 Canadian cents a share. That was just ahead of analysts’ estimates of 12 Canadian cents a share.
Additional reporting by Sneha Banerjee in Bangalore; Editing by Gopakumar Warrier, Sriraj Kalluvila and Peter Galloway