Glencore, the world’s biggest commodities trader, had a bad week partly because the Swiss company’s most profitable business – coal – is no longer getting a lot of love among investors and energy buyers. The grubby, planet-warming fuel is far from dead but, mercifully, the date for “peak coal” may finally be within reach.
Glencore is both a mining and trading powerhouse. In Canada, it owns the old Falconbridge nickel miner and controls the country’s biggest grain handler, Viterra. It was coal, combined with a predatory acquisitions strategy, that propelled Glencore to its fearsome heights. Today, it is the top producer and exporter of thermal coal (the coal burned in electricity plants) and makes fortunes from it. In 2019, almost a third of Glencore’s EBITDA – earnings before interest, taxes, depreciation and amortization – came from coal.
But the world is beginning to conspire against coal. Carbon taxes are rising and coal prices are falling, largely because of the glut of liquefied natural gas (LNG), a competing fuel with a lower carbon footprint. On Tuesday, when it published last year’s results, Glencore revealed a goodwill impairment charge of almost US$1-billion on its Colombian coal operations. That writeoff, combined with US$1.8-billion in goodwill charges elsewhere, left Glencore with a net loss of US$400-million. The shares fell; in the past year, the company has lost a quarter of its stock market value.
Some investors and analysts think it’s time for Glencore and other big mining houses to ditch their coal assets by selling them or spinning them off into separate businesses. They should. If they don’t, they risk being blacklisted by the ever-larger groups of investors whose buying and selling decisions are based on environmental, social and governance (ESG) concerns. Coal is an automatic minus on any ESG list.
Coal powered the industrial revolution and continues to power the industrial rise of China, which is still building more coal plants than it is mothballing, ensuring an overall rise in the global coal fleet. That’s the bad news; the good news is that the coal era is coming to an end. As the price of renewable energy and gas continues to fall, and as pressure mounts on countries that signed the 2015 Paris climate agreement to cut carbon emissions to prevent catastrophic warming, coal use could peak in the next couple of years.
Already, large parts of the planet are abandoning coal. Ontario operated five coal plants in 2003, the year it promised to phase out coal-fired electricity generation. They were all gone by 2014. Portugal has vowed to close its last two coal plants by 2023 and routinely generates all its electricity from renewable sources. More than 30 countries, including Canada, Germany, Italy and Mexico, have made plans to close all their coal burners by 2030.
Britain, one of the biggest economies in the world, has done an amazing job of stripping coal out of its energy mix. Last summer, for the first time since the 1880s, Britain went more than two weeks without burning any coal to keep the lights on. In the past decade alone, the country has eliminated two-thirds of the carbon dioxide emissions from its electricity system, the fastest pace among the big economies.
The International Energy Agency says that “final investment decisions” for new coal plants fell by three-quarters, to 23 gigawatts, between 2015 and 2018. In 2018, possibly for the first time, more coal burners were shut down globally than were approved for construction, which typically takes four years.
But China is still adding coal-plant capacity; its rate of new construction more than offsets the retirement of capacity in the rest of the world – a flagrant rebuff to the United Nations’ plea that no new coal plants be built anywhere after 2020. China has reduced the pace of new coal-plant openings substantially in recent years, although the figure is still distressingly high.
China has committed to a low-carbon future, if only to reduce the choking pollution that blackens its cities’ air, and has signed the Paris agreement. Its coal consumption may peak in the next few years.
Coal use in China doesn’t have to fall before Glencore and its rivals feel more coal pain. Well aware that coal can darken its share price as ESG investors come on strong, Rio Tinto, one of the world’s biggest mining companies, unloaded the last of its coal operations in 2018. Mighty BHP Billiton might do the same. Glencore itself has agreed to cap its own coal production at 150 million tonnes a year and it will reduce its Scope 3 emissions (which includes indirect emissions, such as flights taken by employees and emissions from suppliers) by 30 per cent by 2035.
Glencore and the other diversified mining companies that are still stuffed with coal might have to go one step further and spin off the black stuff. Coal is becoming a pariah product. Funds everywhere are resisting any exposure to coal, which is synonymous with global warming and dirty air. All big industrial companies play the greenwashing game. Ditching coal would make that game far more credible.