The turnoff to Teck's Line Creek Operations in the Elk Valley. (Scott Tibballs / The Free Press)

Teck coal profits down in 2020, pins hopes to Chinese recovery

The company released it’s Q4 and 2020 un-audited numbers on Feb. 17

Teck has released it’s un-audited results for 2020, with the company reporting that the fourth quarter was the strongest of 2020 across company operations, despite precipitous falls in the coal division’s gross profits.

Focusing on coal production, Teck reported that it’s steel-making coal sales were “near the top end of our Q4 2020 guidance range at 6.1 million tonnes, with nearly 20 per cent of sales to Chinese customers.”

The hard numbers show that company-wide, Teck’s revenues and gross profits were well down through 2020 compared to 2019, with the company’s profits coming in at $1.333 billion in 2020, down by over 60 per cent from $3.34 billion in 2019.

The fourth quarter was stronger year-on-year, with the company posting gross profits of $505 million – an increase of almost 10 per cent over Q4 2019, when Teck made $460 million in gross profits.

The increase in gross profits in Q4 2020 was mostly thanks to the company’s copper division, which accounted for $368 million (compared to $120 million in 2019).

However, the coal division was significantly down, contributing $36 million in gross profits in Q4 2020 compared to $241 million in profits in Q4 2019.

The drop put the coal division second-last in contributions to the company’s bottom line, ahead of the energy division which made a loss in the last quarter. In 2019, coal accounted for more than half of the company’s gross profits in Q4.

For the whole year the picture was even uglier for the coal division – in 2019 coal accounted for $2.112 billion in gross profits for Teck (of $3.34 billion across all divisions), while in 2020, coal accounted for $277 million – a drop of over 86 per cent.

The company blamed a 19 per cent fall in realized steel-making coal prices for the fall in gross profits (from $US$131 per tonne to US$107 per tonne from Q4 2019 to Q4 2020), as well as the ongoing pandemic.

An increase in prices paid by Chinese buyers midway through Q4 didn’t get fully captured by Teck however, with most sales already concluded by that point. The company has previously noted that Chinese interest in Canadian steel-making coal was rising, as Australian competitors were being frozen out of the lucrative Chinese market.

Teck appears to be pinning many of its hopes to China, which has been leading the recovery in steel-making coal demand.

“Steel production in China returned to pre-COVID-19 levels during the second quarter and has been running at record production levels since May 2020, with full-year production reaching a new record high of 1.05 billion tonnes,” reads Teck’s report.

“During 2020, China increased its seaborne steel-making coal imports by approximately 20 per cent to the second highest level to mitigate supply shortness due to lower imports from Mongolia amid almost stable Chinese domestic production. China’s heightened seaborne import restrictions which came into effect in October 2020, are mainly directed towards Australian coal, creating demand for seaborne steel-making coal from sources other than Australia. A number of Teck’s Chinese contract and spot customers inquired for availability of cargos throughout the fourth quarter and into 2021.”

Despite this, operations were performing in-line with expectations given the COVID-19 pandemic headwinds through the year, with all business units across copper, zinc, coal and energy achieving production and sales guidance.

Looking ahead at guidance, it expects its steel-making coal operations to produce between 25.5 and 26.5 million tonnes of coal in 2021 – up from the reported 21.1 million tonnes produced in 2020, and in line with the 25.7 million tonnes produced in 2019.

The company outlook for the coal division is rosy – with increasing production, inventory and sales opportunities credited for brighter expectations in 2021.

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