GLNCY Glencore Plc (PK)

By Timothy Puko 

Coal prices tumbled 11% in the third quarter, skidding to an eight-year low on Wednesday and worsening the pain for beleaguered miners, including Glencore PLC.

A global benchmark for coal used in power plants fell 1.9% on Wednesday to $52.95 a metric ton, according to Platts, a pricing service of McGraw Hill Financial Inc.

Driving the selloff is China's push for cleaner-burning fuels as well as its actions to protect its own miners, which have forced global coal producers to scramble to find other buyers. Like other commodities, the coal market is mired in a glut. In recent months, the oversupply in coal has been exacerbated by rising output from troubled mining companies, which have been able to slash costs.

That has dashed hopes for a recovery in prices either this year or next, traders and analysts say, and has put pressure on miners that took on debt to snap up assets when prices were higher.

Glencore's share price plummeted to an all-time low on Monday--before rebounding on Tuesday and Wednesday--amid worries that persistently low commodity prices threaten its credit rating. Shares bounced back after Glencore reiterated that it was on track to cut its debt and faced no threat of insolvency.

Glencore is the world's biggest exporter of the thermal coal, which is burned in power plants, and also produces metallurgical coal, which is used to make steel.

The price of metallurgical coal fell to an 11-year low earlier in September. Since hitting an all-time high in 2011, "met" coal has plunged 73%, according IHS Inc., a consulting firm. That is worse than any of the 22 commodities tracked by the Bloomberg Commodity Index, with the exception of U.S. natural gas. Coal, which has a limited futures market, isn't generally included in commodity indexes.

"If the Chinese market continues to crater like it has, then it will be difficult for the overall global coal market to make much of a gain," said Matthew Moore, senior physical coal trader at Vattenfall AB in Amsterdam.

When Glencore purchased mining titan Xstrata in 2012, Glencore Chief Executive Ivan Glasenberg called it "a big play" on coal. The coal price is the second-most influential driver of earnings after copper, according to Glencore's financial assessment for the second half of 2015.

Glencore wasn't the only miner to fork over billions for assets near the top of the market. From 2010 to 2012, Alpha Natural Resources Inc., Arch Coal Inc., Peabody Energy Corp. and Walter Energy Inc. bought mines in part to try to profit from China's strong demand. The increase in production that followed led to a supply glut. The swoon in coal prices forced Alpha Natural and Walter Energy to file for bankruptcy protection this year.

"What you (have is) the hangover from the boom times from 2010 and 2011," said Anthony Young, a senior analyst at Macquarie Group.

The head of BHP Billiton Ltd.'s coal business said in September that restrictions China introduced this year on certain types of highly polluting coal have added to the global glut. The country has also placed tight trade policies on imports to protect its own domestic production in the last 18 months, helping to shrink imports for the first eight months of this year by 38% compared with the same period a year ago, according to Macquarie.

Citing changes in China among other factors, analysts at Goldman Sachs recently cut their forecast for coal prices across the board by as much 23%. They expect thermal prices to keep falling through 2018 and metallurgical coal prices to stay flat until 2017. Coal, along with other bulk commodities like iron ore and manganese, appears to have sufficient supply "for years, if not decades" ahead, Macquarie said in a Sept. 23 note.

The shift to cleaner fuels has happened more quickly than expected and is likely to continue, Goldman analysts wrote. But at the same time, China and India, another big coal consumer, show signs of increasing their own production, the analysts said.

A lower oil price has also hurt, analysts said. It has reduced fuel costs, allowing miners to produce more at a cheaper price, but also emboldening their customers to ask that miners pass the savings on to them. Oil prices are down more than 15% year to date.

Currency prices have had a similar influence. Many currencies around the world have weakened this year compared with the dollar, making labor and other costs cheaper for miners in many of the world's biggest coal-exporting countries, including Australia, Russia and Colombia, said Ted O'Brien, chief executive of Doyle Trading Consultants. Weaker currencies blunt the pain from low commodity prices, encouraging miners in those countries to keep ramping up output to retain their customers.

"Global thermal prices are likely to continue falling," Mr. O'Brien said. "There is no catalyst on the horizon" to help.

Write to Timothy Puko at tim.puko@wsj.com

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(END) Dow Jones Newswires

September 30, 2015 21:04 ET (01:04 GMT)

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