Jamie Gray

Jamie Gray is a business reporter for the New Zealand Herald and APNZ wire agency

Solid Energy tips hard times as coal prices slump

The Huntly East Mine. Photo / Dean Purcell
The Huntly East Mine. Photo / Dean Purcell

State owned coal company, Solid Energy, said it was reviewing all aspects of its business in response to low coal prices and the high value of the New Zealand dollar.

Solid Energy, which is on the Government's list for partial privatisation, said its medium-term outlook was similar to that faced by many other New Zealand exporters - lower commodities prices magnified by the continuing strong New Zealand dollar.

"The steep fall in demand and prices for internationally traded coal means the business anticipates its revenues will fall about $200 million in the current financial year," the company said in a statement.

International prices for high-grade coking coal have fallen over 40 per cent to below US$200 per tonne from well above US$300 per tonne in 2011 and are at their lowest point for some years.

Solid Energy said the outlook was different to that faced by the company during the 2008-09 global financial crisis.

In early 2009, as commodity prices plunged, the New Zealand dollar followed, softening the fall in New Zealand dollar prices. Spot prices then rebounded within a matter of months.

"At present there is no certainty about when international growth will resume and lift international coal demand and prices," the company said.

Solid Energy chief executive Don Elder said the industry consensus was that the market bottom remained some way off.

"While many in the industry still expect demand, driven by Asia, to pick up again strongly sometime in 2013, Solid Energy needs to plan to withstand these market conditions for at least the next 12 months and possibly for 24 months or longer," he said in a statement.

"As a consequence, we are reviewing all areas of our business, including current and future operations, all fixed and variable costs, and the values of some of our assets, which will result in us taking significant impairments," he said.

Elder said the company's aim was to preserve cash through reduced spending.

The company expects to provide further details about the company's outlook later this month when the company's 2012 financial results are announced.

- APNZ

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