Commodities Comment:Thermal coal certainly needed supply cuts, but why now?

Glencore has announced “plans” to reduce its 2015 Australian coal productionby 15 million tonnes, which in the absence of further details we’d assume isentirely thermal coal. While in our view this is not enough to balance themarket, it is not in itself an insignificant figure. The company’s statedreasoning is to better align production volumes and qualities with currentdemand. Presumably, by current demand, it is referring to that fact that Indiais the only major importer showing signs of life, while China looks to bedisappearing as the market of last resort for surplus tonnes.

    However, with production costs having fallen markedly over the past 8 monthsand Glencore well positioned on the cost curve, this wouldn’t seem to be apurely economics-driven move. More likely is that the company is improvingits negotiating position heading into Japanese Fiscal Year (JFY) contract talks