Dark Clouds Hovering Over Coal Front; ACCC’s New Proposal a Silver Lining?

Summary

• Coal prices have improved slightly recently; however, despite a slight recovery in price, the demand for coal, especially in the power generation is slowly waning as coal-fired power plants are approaching retirement across the continent and other geographies.
• The demand for coal is currently fragmented between emerging and developed economies, and most of the ASX-listed coal miners are diverting their coal towards emerging Asia, as developed nations are noticeably cutting their coal usage.
• China, which lingered to be the primary market for the domestic coal export has now implemented strict import measures on the Australian coal to subsidize the domestic coal supply.
• However, the recent proposal from the Australian Competition and Consumer Commission (or ACCC) could bring coal producers an opportunity to reduce uncertainty concerning the coal market and achieve more timely outcomes.

Coal price is recovering from its recent low with Newcastle coal futures surging from the low of USD 59.70 per tonne (seen in May 2020) to the level of USD 64.00 per tonne (as on 5 July 2020), which marks a uptick of ~ 7.20 per cent post slipping from its 2018 peak price of USD 111.00 a tonne (high in October 2018).

Coal is slowly waning from the energy generation portfolio with many coal-fired power plants approaching retirement across Australia and other geographical regions, and Accord de Paris is prompting many countries such as the United States, China, and Europe to shift the energy generation portfolio towards the renewable alternatives.

To Know More, Do Read: Renewable Energy Integration into The National Grid- Challenges and Opportunities

Japan, which was favouring coal-fired generation till now is also shifting towards nuclear energy generation over the improved efficiency and safety of the nuclear power plants.

To Know More, Do read: ASX-Listed Alternative Energy Stocks Under Investors’ Lens as Oil Risk Surmounts

In the status quo, the demand for coal is fragmented between emerging and developed economies, while the demand for thermal coal is under pressure over the reduced usage in the developed nations, the emerging economies such as India is anticipated to use coal for its energy generation as the energy demand grows on the account of increasing population and GDP.

To Know More, Do Read: EIA Modelled Reference Case Forecast; Non-OECD Nations To Witness Higher Energy Consumption

The fall in demand for coal across many geographies has prompted the ASX coal mining companies to loosen the dividend purse and divert the coal to Asia, where the demand for thermal coal is relatively high.

Suggested Read: Need Dividend from Mining Stocks? Coal Miners Well Positioned to meet your Dividend needs

While the thermal coal prices have witnessed a decline over the dwindling demand, the metallurgical coal also remained unimmune to the change in geopolitical trends. China, which lingered to be the primary market for the domestic coal export, implemented strict import measures on coal to subsidize the domestic coal supply.

The trade protection measures implemented by China exerted pressure on metallurgical coal prices as well.

Short-Term and Long-Term Trend

Over the short-term, the market participants anticipate the coal demand to remain in place across the emerging Asian economies before Asia could adopt technologies to switch from coal-to-gas and renewable sources.

Coal Price Forecast: Australia Diverting Coal To Emerging Asia While China’s Coal Import Policies Cracking Down on ASX Coal Stocks

However, over the long-run, coal market is estimated to eventually face competition from the low natural gas prices, which is currently in place over the supply glut majorly created by the United States, Qatar, and Australia.

Suggested Read: Australia To Jostle Qatar for the LNG Crown; How Long Would the Reign Last?

Apart from that, the improvement across the technologies to make the renewable energy more cost-friendly coupled with the Accord de Paris is posing a major challenge for the thermal coal industry ahead, and the market remains uncertain, considering the lower demand from various developed nations.

However, the recent proposal from the Australian Competition and Consumer Commission (or ACCC) for allowing coal producers to negotiate with Port of Newcastle for the coal export, could bring coal producers an opportunity to reduce uncertainty and achieve more timely outcomes.

The competition regulator has proposed NSW Minerals Council along with ten coal producers to collectively negotiate various terms, such as pricing, port accessibility, with the Port of Newcastle for exporting coal and other minerals and had suggested that soon other mining companies would also be able to join those negotiations.

Since December 2019, individual coal miners have been negotiating with the Port of Newcastle Operations concerning a 10-year agreement for port accessibility, and the collective negotiations do not extend to sharing sensitive commercial information about customers, marketing strategies, coal volumes or future projections.