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Teck Resources: The Coal Segment and Its Major Markets

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Coal segment

Previously in this series, we discussed Teck Resources (TCK) copper and zinc operations. In this part, we’ll analyze its steelmaking coal segment. Teck Resources is the world’s second-largest exporter of steelmaking coal. It’s also North America’s largest producer, with the capacity to produce 28 million tons annually.

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Largest business segment

In terms of revenues, the coal segment is Teck Resources’ largest segment. Last year, coal operations contributed 39% of Teck Resources revenues and made up 32% of gross profit before depreciation and amortization. This segment’s profitability was negatively affected by a drop in steelmaking coal prices. Average realized coal prices dropped from $149 per ton in 2013 to $115 per ton in 2014.

Freeport-McMoRan (FCX) derives almost one-sixth of its revenues from energy sales. Southern Copper (SCCO) also has a portfolio of coal assets. FCX currently forms 3.25% of the SPDR S&P Metals and Mining ETF (XME) and 3.41% of the iShares U.S. Basic Materials ETF (IYM). Hecla Mining (HL) forms 4.7% of XME.

End markets

In 2014, Teck’s coal operations produced 26.7 million tons of steelmaking coal, a record for the company. The segment also sold 26.2 million tons.

Asia is the largest market for Teck’s coal segment. A quarter of its sales go to China, and the rest of Asia accounts for half, as you can see in the above chart. North America accounts for only 5% of Teck Resources coal sales, and 15% comes from Europe.

This segment is dependent on demand from the steel industry. And the steel industry is currently seeing a slowdown. In the next part of this series, we’ll discuss how the slowdown in the steel industry affects Teck Resources.

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