Yancoal CEO Says Commodities Pullback a "Rude Awakening"

By Rhiannon Hoyle

SYDNEY--A sharp pullback in the value of commodities like coal and iron-ore in recent months was "a rude awakening" for Australia's mining industry that's likely spur further production cuts, Yancoal Australia Ltd. (YAL.AU) managing director Murray Bailey said Friday.

The commodity price declines were somewhat inevitable after stimulus measures rolled out in China in response to the financial crisis of 2008 drove the value of raw materials to record levels, Mr. Bailey said at a Sydney conference.

The price of thermal coal--which is used for power generation across Asia and accounts for almost half of Yancoal's sales--has fallen 21% so far this year. Hard coking coal, used in steel-making, has fallen 29%.

It would be a "natural reaction" for mining companies to slow their rate of production, contain costs, and boost productivity in response to this, Mr. Bailey said.

Last month Chinese-backed Yancoal, which was formed through Yanzhou Coal's recent takeover of Gloucester Coal and listed on the Australian Securities Exchange in June, said it would review expansion plans at all seven of its mines across the Queensland and New South Wales states.

Other mining companies have also been curbing growth plans and idling production at existing mines following the pullback in prices. Earlier this week, BHP Billiton Ltd. (BHP) said it would cease production at one of its jointly owned metallurgical coal mines in northeastern Australia. Xstrata PLC (XTA.LN) recently trimmed 600 jobs across its Australian coal operations.

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