It’s not just the low price of oil that’s causing trouble. Coal companies too are being ravaged by low prices.
The slide in oil prices has raised speculation that oil companies in the U. S. could be forced to cut back on production, but a market slump in another commodity is also putting pressure on producers.
Coal markets are currently experiencing a supply glut that is showing no signs of recovery. Mining companies drew up plans for billion-dollar projects in the mid-2000s, when commodity prices were on the upswing. With many of those projects now coming online, coal production is rising.
BHP Billiton, an Australian mining giant, just opened a $3.4 billion mine in Queensland, which will add 5.5 million tonnes of coal capacity per year to the global market. The mine allowed BHP Billiton to push its production to record levels. Australian Prime Minister Tony Abbott was on hand for the ribbon-cutting ceremony, where he proclaimed ‘coal is good for humanity.’
Related: Australia’s Energy Policy Is Simple. Listen To The UN And Do The Opposite
Whether or not that’s true, it’s clear that the markets are not being good to coal. BHP Billiton is adding a new ‘world class’ mine, but other mines in Australia are shutting down or laying off workers because of low prices and weak demand. According to Reuters, a third of Australia’s mining sector is operating at a loss, choosing to keep operations going while waiting for sunnier days.
This post was published at Wolf Street By Nick Cunningham, Oilprice.com ‘ October 25, 2014.