"Thermal coal output from Asia too high"

Too much thermal coal is coming out of Australia, China and Indonesia and something will have to give, according to Xstrata plc chief executive Mick Davis as quoted by Asia Pulse.

Davis - formerly Billiton's thermal coal chairman before its merger with Australia's BHP - does not believe the Asian thermal coal price will recover much this year.

Local thermal coal miners settled contracts at $US26.75/tonne free on board for the 2003 Japanese fiscal year but the spot price recently sunk to $US23/tonne.

Davis said the price had been depressed because of the amount of coal produced in Australia, China and Indonesia.

"Some of that can be corrected through more discipline by the Australian producers but I don't see a scenario this year of the Asian coal price recovering to any great extent," he told AAP.

"But something has got to give."

He said the Australian-based producers had to either adopt more prudent and sound commercial decisions about production capacity or the local currency had to ease back against the US dollar.

Xstrata has trimmed production and hedged its Australian coal output this year at 53 US cents and was making money on exports despite the rising Australian currency.

"We are still making good money out of Australia ... good profits, good cashflow," Davis said.

"But I would doubt very much if there are many other producers who are doing anything other than incurring losses right now at the current exchange rate."

He said the European thermal market was the reverse and Xstrata recently signed contracts there at $US29/tonne.

In Europe, the South African and Colombian producers have achieved almost equilibrium of supply and demand which kept its price higher than Asia.

Xstrata does its own independent marketing but pays its 40 per cent major shareholder Swiss metals trader Glencore International AG a fee for utilising its market data.

Xstrata - which already owned 16 thermal coal mines in the Hunter Valley, NSW, today took over MIM's suite of world class Bowen Basin coal assets.

Xstrata now also owns the coking coal mine at Oaky Creek, plus steaming coal operations at Newlands and steaming/coking coal at Collinsville, all in central Queensland.(*)