Et tu, Glencore?
It's only a few months ago that the world's biggest commodity trader was promoting coal as - don't laugh - a viable part of global emissions-reduction plans. Now Glencore, the largest supplier of thermal coal to the international market, is promising to cap production for the foreseeable future at about current levels of 145Mt a year.
The move is striking because coal made up the biggest slice of Glencore's profits in 2018 annual results published this week, and the company is one of the few diversified miners committed to the black stuff.
Anglo American attempted to sell all its coal assets during its abortive restructuring in 2016, but gave up because no-one was willing to pay an acceptable price. Rio Tinto Group got rid of its last coal mines (to Glencore, no less) last year.
BHP Group seems committed to its huge mines producing steelmaking coal, but appears less attached to the ones producing the thermal coal used in power generation.
What's changed? One factor is that investors are putting pressure on companies to back away from the dirtiest emissions. Those still invested are likely to buck management on climate-related shareholder resolutions.
Glencore's move follows "engagement with investor signatories of the Climate Action 100+ initiative", the company said this week. "We must invest in assets that will be resilient to regulatory, physical and operational risks related to climate change."
Institutions with $6.2-trillion (about R86-trillion) in assets have committed to diversify from fossil fuels, said philanthropic consultancy Arabella Advisors.
AxaSA and Swiss Re will not invest in or insure companies that derive more than 30% of their revenue from coal. Norges Bank Investment Management, the sovereign wealth fund that is one of Glencore's biggest investors, in theory uses the same 30% bar for screening its shareholdings.
Even Glencore is not pushing thermal coal as hard as its rhetoric might suggest. It opposes Adani Enterprises' Carmichael project in Australia, which would dump extra supply on a market that cannot digest it.
The attempt to throttle back additional tonnage isn't just about excluding competitors. Coal received just 10% of Glencore's expansion capital expenditure in 2017, despite accounting for almost a third of ebitda, suggesting the business was being run for cash.
This week's announcement does not mean Glencore is turning its back on coal. Thanks to its investment in Rio Tinto's mines north of Sydney, Australia, in 2017, it will be churning out the black stuff for decades.
Still, the announcement gives another clue to how coal will decline. It's not going to be a sudden end, where prices of traded soot fall permanently below marginal costs and guillotine the industry. We're more likely to see death by a thousand cuts.
More shareholders will divest from miners and from their customers who burn the fuel; the group of insurers who refuse to provide coverage for mining projects and thermal generators will expand, further pushing up costs; new supplies will come increasingly from relative minnows, which will struggle to get access to capital, plus a handful of state-owned giants in China and India.
At times, that throttled supply may push prices higher. Right now, that dynamic is keeping benchmark coal at Australia's Newcastle port at about $94/t, delivering healthy profits to Glencore.
That won't help in the long term. The prices of wind and solar power and the battery storage to back them up keep on falling, as manufacturing efficiencies drive down costs. New wind and solar are already cheaper than coal in Australia, Brazil, Chile, China, Germany, India, Thailand, the UK, the US and Vietnam, according to Bloomberg New Energy Finance data.
Coal shipments last year topped a billion tons for the first time in history. The future looks darker. When the biggest producer calls time on the market, it's time to shut up shop.
Bloomberg..