Rio’s new coal chief sees commodity recovery in the ‘very’ far distance

Jacques, who was named as the company’s new coal leader in February when Rio revealed plans to combine its copper and coal divisions to cut costs, told The Australian Financial Review he expected the sector to undergo longer price pain than anticipated.

“In coal we have to be ready that we have multiple years, it could be even three or four years, before we see an inflection point,” Jacques was quoted as saying. “There will be volatility, don’t get me wrong; but where you say, ‘Well there is a real step change’ – that won’t be in the short term.”

Jacques added his main priority since taking over the job from Harry Kenyon-Slaney eight weeks ago is to ensure Rio’s coal mines remained free-cash-flow-positive, amid what he called “a very challenging environment”.

Thermal coal prices is trading at six-year lows levels. (Click to enlarge)

Thermal coal prices are currently down to six-year lows of around US$63 a tonne, far from the US$150 per tonne the commodity was fetching in 2011.

Analysts estimate around a fifth of the thermal coal industry is losing money based on current prices — a position that is usually unsustainable in commodity markets.

“When you are that far into the cost curve, the downside is pretty limited,” Tom Price, commodities strategist at Morgan Stanley, said in a March note. “Price buoyancy is already indicating that this is the case.”

And while there is talk of supply cuts and rising Indian demand, China continues to be the main factor to tip the seaborne thermal coal market one side of the other.

Late last year, Beijing introduced a series of measures to help protect its domestic coal mines from competition and reduce pollution at the same time.