CALGARY (CP) -- Tires will remain a limiting factor as the Fording Canadian Coal Trust [TSX:FDG.UN; NYSE:FDG] exploits coal prices which have increased 83% in the past year but now are slackening, the trust's executives said Tuesday.
The trust's units were down about 5% Tuesday on the Toronto Stock Exchange after it reported first-quarter earnings of C$165 million, up from C$65 million a year ago, but pointed to price, volume and cost problems.
Fording, which owns 60% of the Elk Valley metallurgical coal partnership managed by Teck Cominco Ltd. [TSX:TEK.SV.B], disclosed that its average selling price for the 2006 coal year is expected to be $107 US per tonne, down from C$122 per tonne in 2005 and C$2 per tonne below its previous guidance.
The trust, which keeps its accounts in Canadian dollars, said January-March revenue climbed 65% to C$485.2 million from C$294.9 million.
Coal sales prices at Elk Valley Coal, the world's second-largest exporter of coking coal used in steelmaking, averaged US$122.30 or C$152.30 per tonne in the first quarter, up from US$61.30 or C$83.30 a year ago.
However, sales were down 9% by volume ''due to some customers not taking delivery of coal as scheduled, as well as the cancellation of the majority of contracts with customers in China,'' Fording president Jim Popowich told a conference call.
Production fell to 3.5 million tonnes from four million tonnes, and sales dropped to 3.1 million tonnes from 3.4 million tonnes.
Meanwhile, the cost of goods sold swelled 36% to C$38.60 per tonne amid higher expenses for fuel, labour and other inputs. There also was a 26% increase in railway and port costs to C$37.80 per tonne.
Distributable cash, a non-standard accounting term, nearly tripled to C$202 million or C$1.37 per unit, while the trust distributed C$1.40 per unit.
Popowich attributed the downward pricing pressure to growing supply from Australia and Canada, a decrease in seaborne purchases by Chinese steelmakers, and large inventories of metallurgical coal at steelmills after heavy buying late last year, amid hints of ''a developing oversupply of steel.''
Meanwhile, Elk Valley Coal ''still faces the challenge created by the haul-truck tire shortage, which could limit capacity to 24 million to 25 million tonnes into 2007.''
The shortage of massive tires needed by mine heavy equipment is afflicting producers worldwide and ''the tire manufacturers have indicated that this situation may continue into early 2008,'' Popowich said.
He added that expansion work at the Cardinal River and Fording River operations will increase capacity to 28 million tonnes ''once the tire issue is behind us.''
Overall, ''we believe the cost levels seen in the first quarter are an indicator of what we will see going forward,'' Popowich said, noting that Elk Valley will take inventory-control downtime ''as required to reduce costs.''
He observed that Elk Valley's cost increases for labour and materials ''are not unlike those seen in other heavy-industry sectors, particularly in Western Canada, which is impacted by the oilsands industry.''
Elk Valley units, which earned C$1.12 each in the latest quarter, up from 44 cents a year ago, were trading down C$2.39 or 5.4% at C$42.27 late Tuesday morning.
(c) The Canadian Press 2006
