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.
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.
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.