RIO Tinto subsidiary Coal & Allied Industries plans to slash production amid ongoing shipping backlogs at Australian ports, a move analysts warn could spread across the sector.
Coal & Allied will cut its production this year by about 20 per cent, and reduce its workforce by about 250 contractor jobs across three sites at its Hunter Valley operations.
In 2006 production was broadly flat at 28.8 million tonnes.
“We need to reduce our total production this year by approximately 20 per cent to adapt to these revised allocation levels,” managing director Douglas Ritchie said.
“The changes are being implemented to bring our production levels into line with the reduced allocation of port and rail capacity made available to all users.”
Mr Ritchie said the existing system of allocation and planning is “clearly untenable”.
“We are working with other parties involved in the coal logistics chain to develop a long term strategy to provide a more stable basis for industry to operate in,” he said.
In January, Coal & Allied reported a 29 per cent slump in full-year net profit to $206.8 million and warned the shipping queues responsible for the dip might continue into 2007.
It also posted a drop in first quarter production to 4.605 million tonnes, from 5.231 million for the same period last year.
The shipping queues biting into Coal & Allied’s production are a major problem for the sector.
Just last week Queensland coal miner Macarthur Coal cut its full-year sales target to 3.7 million tonnes for 2006-07 from its previous estimate of 4.5 million tonnes, although it left the profit forecast unchanged at $63 million-$73 million.
In April, Coal & Allied Industries chairman Chris Renwick warned Australia’s reputation as a reliable energy supplier could be tarnished if infrastructure issues dogging the industry were not addressed.
Demand for coal is continuing to strengthen, keeping prices high, but infrastructure problems and Australian ports are hampering exports.
Fat Prophets analyst Gavin Wendt said the Coal & Allied move was unsurprising and warned that more companies may follow suit with warnings on production and sales for 2007.
“It’s something that unfortunately is an industry-wide phenomenon,” Mr Wendt said.
Rio Tinto shares closed up $1.60 at $82.75 and shares in Coal & Allied last traded at $80. AAP
Information from: www.news.com.au