- Coal accounted for nearly one-quarter of domestic resource exports by value over the past decade in Australia. However, global coal demand seems under doldrums, creating some uncertainties for long-term outlook for coal exports.
- Demand for coal would be shaped by the pace of transition from conventional sources of energy generation to renewable energy sources, change in steel production technologies, and pace of global economic growth.
- Thermal coal market that remained robust across emerging Asia on the back of expected economic growth is now witnessing an unprecedented shift with coal imports and long-term outlook coming in doldrums.
- Likewise, post enjoying a period of high demand from China over disruptions in other supply routes; metallurgical coal market is also coming under pressure over the impact of COVID-19 outbreak on global economy.
Coal is one of the largest exported materials and accounted for nearly one-quarter of the domestic resource exports by value over the past decade in Australia. However, global coal demand seems under doldrums, creating some uncertainties for long-term outlook for coal exports.
In the forward context, demand for coal would be shaped by the pace of transition from conventional sources of energy generation to renewable energy sources. Other factors would be change in steel production technologies and pace of global economic growth, especially across emerging Asia.
The major implications, price and coal market could now be identified with the use, which could be broadly classified into two, i.e., thermal coal and metallurgical coal.
The Thermal Coal Landscape
Thermal coal, which accounted for ~ 45 per cent of the global energy generation in 2018, is now slowly fading away from developed economies. Many countries such as Russia, United States and Japan are closing down their coal-powered power plants while avoiding the refilling or maintenance of ageing plants.
Australia is the world’s second-largest coal thermal coal exporter and hosts the fourth-largest black coal resources. By volume, China, India, Japan, South Korea, and Taiwan account for the key markets for Australian coal.
- However, changing import policies across China and the resurgence of nuclear power across Japan are now keeping the thermal coal market at bay.
- In the recent past, China imposed stringent restrictions on coal imports to promote local coal mines, which so far remained in high pressure from global peers amid cost advantage of international players, prompting Australian coal miners to divert their coal to Japan.
But with the resurgence of nuclear power plants, coal import across Japan had demonstrated a slower growth pace, leading to a large shipment across emerging Asia from Australia.
Japan imported 135 million tonnes of thermal coal in 2019 to become the third-largest thermal coal exporter across the globe with stable year-on-year imports. However, many industry experts such as the Department of Industry, Innovation and Science (or DIIS) estimate the import volume to decline by ~ 2 million tonnes to stand at 133 million tonnes in 2020.
- In emerging Asia, economic growth forecast along with diverged interest of coal miners had garnered some interest in the coal sector in the recent past.
- However, the COVID-19 outbreak has taken a deep toll on the coal market across Asia. For example, India, the second-largest thermal coal consumer and importer in 2019 with an estimated import of 211 million tonnes, witnessed a nationwide lockdown in late-March. The lockdown across the nation was extended until the end of June 2020, leading to a decline in coal demand.
In a nutshell, the thermal coal market that remained robust across emerging Asia over estimated economic growth is now witnessing an unprecedented shift with coal imports and long-term outlook coming in doldrums.
The Metallurgical Coal Landscape
The major ingredient in steel making along with iron ore, metallurgical coal is showing another scenario as compared to thermal coal.
Australia is the world’s largest metallurgical coal exporter with the continent exporting 184 million tonnes in 2019.
- Metallurgical coal responded differently in the COVID-19 scenario with prices surging initially over COVID-19 related disruptions in the domestic supply chain and high demand from the robust steel industry.
Apart from that, the cross-border shut with Magnolia stalling coal trucks prompted China to turn towards the seaborne market to make up for the shortfall.
Furthermore, the shortfall was exacerbated by weather conditions in Canada and certain other challenges in the global supply chain with a roof collapse at Anglo American’s Moranbah North mine in Queensland.
However, post enjoying a period of high demand from China over disruptions in other supply routes; the metallurgical coal market came under pressure over the impact of COVID-19 outbreak on the global economy, leading to a decline in the global steel production.
In 2019, metallurgical coal trade on a global scale remained stable with a trade of ~ 340 million tonnes while lately coming under pressure due to the open route of alternative supply for China and the plunge in global steel production.
In 2020, global trade of metallurgical coal is estimated by DIIS at 309 million tonnes over higher import restrictions on seaborne supply imposed by China and forecast of weak growth across emerging Asia, as compared to the pre-pandemic levels.
Apart from that, in general, the rising trade dispute between China and Australia is also contributing to the present landscape of the coal market.
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
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