Teck Resources investors
Teck Resources’ (TECK) operations could become more diversified in 2018 since the Fort Hills oil sands project started commercial production late last year. Until now, coking coal, zinc, and copper (SCCO) (GLEN-L) were the key commodities that Teck Resources produced.
Teck Resources is the second-largest seaborne coking coal supplier (BHP) (KOL). As coking coal prices have increased significantly over the last couple of years, coking coal operations now form the largest chunk of Teck Resources’ earnings. In the first nine months of 2017, coking coal operations contributed more than 70% of Teck Resources’ gross profit. Although the percentage fell to 58.6% in 3Q17, it’s still much higher than previous years. Coking coal operations contributed less than a quarter of Teck Resources’ gross profits in 2Q16.
Asia is the biggest market for Teck Resources’ coal division, accounting for 75% of its shipments. China, India, and Japan are its biggest end markets in Asia. However, China, the largest coking coal consumer, accounts for only 20% of Teck Resources’ coking coal shipments.
Although China accounts for only a fifth of Teck Resources’ coking coal shipments, the country’s coking coal demand still matters to the company since China’s coking coal demand is the key driver for seaborne coking coal prices.
So the outlook for the Chinese steel industry, which consumes coking coal, could be a key price driver for Teck Resources in 2018. In the next part, we’ll look at the outlook for the Chinese steel industry.