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New Hope CEO: Coal industry to remain subdued for next several years

The situation for the coal industry doesn’t seem to be letting up, and could stay this way for several more years. This was the view of CEO Robert Neale of New Hope Corporation (ASX: NHC), who spoke in Brisbane at the Queensland Resources Council forum.

Thermal coal prices are down to their lowest levels in about four years, in the combination with the high Aussie dollar, this makes Australian exports higher in price and less competitive. Over the past several months, cuts in workforces, mines sales and closures, and higher production costs have affected the miners and the mining services companies supporting them.

This is apparent in the share price of New Hope, down 20% since its preliminary final report was released on 17 September. It reported a 15% drop in revenue and a 26.9% fall in net profit after tax before non-recurring items.

It is hoped that there will be sufficient reform in both the Mining Resource Rental Tax (MRRT) and the carbon tax by the Liberal government to help reduce costs, and improve profit margins.

Whitehaven Coal (ASX: WHC) reported at its AGM earlier this month that its production was expected to be up about 25% to 10.7 million tonnes during the FY2014, yet with coal prices at around $85/tonne, there isn’t much room between that and its production cost, which in 2012-2013 was around an average $75.50 before royalties.

Its share price is around $1.50, a level not seen since March 2009.

Linc Energy (ASX: LNC) does offer a bright spot of news as it progresses towards its re-opening of the Blair Athol mine, which it bought from Rio Tinto (ASX: RIO) for $2. It is planning to have a workforce of 120, and wants to get the mine working by around January 2014.

Over 8,000 coal-related jobs have been lost since early 2012.

Foolish takeaway

Investors must always be aware of a particular industry’s major players and its business cycle. For cyclical industries like mining, you want to wait until a definite, well supported bottom is evident, and still you should wait for an upturn in relevant commodity prices and supply/demand imbalances before wading in to buy.

In the meantime, it doesn’t cost anything to research the best companies and have a good idea which ones will fare the best and come back out on top later.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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