Wesfarmers’ coalmining business is under pressure, with realised coking coal prices to fall by 16 per cent in the June quarter.
Mining and retail firm Wesfarmers has been hit by further falls in coal prices, raising questions about the value of its resources business.
The owner of Coles supermarkets has two mines, and will sell metallurgical coal in the current June quarter for about 16 per cent less than in the March quarter.
That amounts to $US111 ($A120.10) per tonne of coking coal, used in steelmaking, compared to $US138 a tonne in the previous quarter.
Wesfarmers Resources managing director Stewart Butel said the prices were in line with recent market price settlements.
Wesfarmers’ mines, in Queensland and NSW, achieved earnings before interest and tax of $59 million in the first half of the 2013/14 financial year.
The division contributed just 2.7 per cent of the company’s total earnings of $2.15 billion, with Coles and other retail and chemicals businesses the dominant earners.
Despite weaker coal prices, Wesfarmers chief executive Richard Goyder said last week the resources business was still profitable, as it was a low-cost producer and in it for the long run.
But IG market strategist Evan Lucas said Wesfarmers’ coal business was a bad investment.
“I don’t see the investment grade behind it, it doesn’t fit their model, it doesn’t fit their conglomerate and they have got much better performing areas than to have this bolt-on business,” he told AAP.
“He (Richard Goyder) tends to be that kind of person – we don’t sell unless we get a premium for it or turn the story around.”
Coal prices have been steadily falling for more than two years amid a global supply glut.
Coking coal is still Australia’s second most valuable export despite the price slump, which has caused thousands of job losses at other major mining companies including BHP Billiton and Glencore Xstrata.
The commodity traded at a record $US330 a tonne in 2011 but spot prices are down to just above $US100 and contract prices are about $US125.
Wesfarmers shares were down three cents at $43.22 at 1522 AEST.