Slump hurts Solid Energy

The falling demand for steel in China is helping drive down prices for coking coal. Photo / Greg Bowker

Solid Energy chief executive Don Elder says grim revenue prospects will not necessarily dent investor sentiment around the state-owned enterprise which is slated for partial sale.

The company warned yesterday that annual revenue had no chance of meeting its most optimistic target of $1.2 billion this year and would fall under $1 billion because of a sharp fall in world prices for coal.

International prices for high-grade coking coal have fallen more than 40 per cent to below US$200 a tonne, the lowest point in years.

Last year, coal fetched US$300 a tonne, Solid said.

Although likely to be at the end of the list of four companies being groomed for sale, Elder said Solid Energy would continue its preparations.

"There are investors around the world who are snapping coal companies up," he said.

"We're working on the basis that people investing in those sectors are often interested in investing when times are tough to help get them through."

Elder said that should not be the Government's role.

"Companies that are public at the moment are probably in a better position so we don't think it will change very much, provided we see this through it will demonstrate we can ride the down as well as create the cream on the up."

Elder said all aspects of the business - which employs 1600 - had been under the microscope this winter as coal prices fell.

Job losses would not necessarily eventuate from a review which would be completed next week.

Scaling back mining and delaying investment in new projects and research and development were possibilities.

"We're now at the point where we'll have to look at how much coal we produce at certain mines when the last 10 per cent is being sold at a negative margin.

Elder said the company had also been hammered by the strong New Zealand dollar.

Elder said big Australian companies were now writing off billions of dollars in response to the falling coking coal price, driven largely by falling demand for steel in China.

Elder said it could be up to two years before there was a significant recovery.

Hamilton Hindin Greene investment adviser James Smalley said commodity companies were always vulnerable to sharp market fluctuations.