Mozambique Mining: Vale Moatize thermal coal sales suprise, coking disapoints

Coal_pilesDuring the second quarter of this year (2Q18), Brazilian mining major Vale’s coal business achieved earnings before interest, taxes, depreciation and amortization (Ebitda) of $45-million. 

Vale’s coal business is composed almost entirely of its Moatize mine in the inland Tete province of Mozambique (The miner’s only other coal assets are minority stakes in two joint ventures in China.)

Moatize produces both metallurgical (or coking) coal and thermal coal, with the former being the main product.

The $45-million Ebitda represents a decline from the figure for the first quarter of the year (1Q18), which came to $59-million. This fall was “mainly due to the lower incoming proceeds ($31-million) related to the Nacala Logistic Corridor (NLC) debt service to Vale, as anticipated in 1Q18, following the takeout in March 2018 of part of the shareholders’ loans conceded for the construction of the NLC, and [the] lower metallurgical coal price,” stated the company in its recently published report ‘Vale’s Performance in 2Q18’.

During 2Q18, the coal business enjoyed net operating revenues of $356-million, down from $380-million in 1Q18. Coal accounted for 4.1% of the Vale group’s total net operating revenues (of which 3% came from metallurgical coal, and the remaining 1.1% from thermal coal).

Net operating revenues from metallurgical coal were $261-million in 2Q18 (compared with $293-million in the first quarter), while earnings from thermal coal were $95-million in the second quarter (up from the $87-million during 1Q18).

The miner explained that the tight global metallurgical supply situation during 1Q18 eased during 2Q18. On the other hand, the strongest demand in six years for thermal coal (for power plants) drove up prices.

While the metallurgical coal quarterly average index price was $228.5/t during 1Q18, it fell by $38.3/t to $190.2/t in 2Q18. However, the price actually realised by Vale declined by only $18.8/t during the same period. This meant that, while Vale’s realised price during 1Q18 was 89.5% of the index in the first quarter, it was 97.7% of the index during the second quarter.

“The better performance, in comparison to the index, was mainly due to [the] higher volume of sales linked to lagged index prices and lower provisional price adjustments, as the 2Q18 price traded with lower volatility and close to 1Q18 end-of-quarter levels,” explained the miner.

“In 2Q18, 99% of the metallurgical coal sales were priced based on the market index, including index-lagged prices, [compared with] 92% in the previous quarter, while 1% was sold based on fixed prices (spot shipments and trail cargoes) [compared with] 8% in 1Q18.”

Concerning thermal coal, the quarterly average index price was $100.3/t in the second quarter, which was an increase of $5.9/t over the price for the first quarter.

Vale realised a higher thermal coal price in 2Q18, compared with 1Q18. The rise was $4.1/t, from $82/t, in the first quarter to $86.1/t in the second quarter. However, there was a slight decline in terms of the price realised and the market index.

During 1Q18, the price realised by Vale for its thermal coal was 87% of the market index, but during 2Q18 it was 86%.

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