Thermal coal exports are under pressure, both from COVID and also from overseas governments looking to cleaner energy sources. Metallurgical coal is bucking the trend, according to the latest edition of the Resources and Energy Quarterly (published by the Office of the Chief Economist).
But first… steel
As every 1,000 kilograms of steel requires 800 kilograms of coal to make, according to the REQ, global steel production and consumption is a key indicator for coal production and exports.
World steel consumption will likely be down by 2.2 per cent in 2020 because of COVID, the REQ says. However, steel consumption will likely rebound by 3.8 per cent in 2021 and 3.6 per cent in 2022.
There will likely be a similar trend in steel production. The key drivers are likely to be automotive production and construction activity. Steel markets around the world will, however, be uneven with growth in China, a recovery in India and South Korea, and difficulties in Europe, Brazil and Japan.
2020 world metallurgical traded coal volumes are estimated to have fallen by 43 million tonnes to 294 million tonnes. It is estimated that they will rebound by 34 million tonnes in 2021 and by a further 21 million tonnes in 2022.
Australian export metallurgical coal volumes are forecast to fall by about eight million tonnes to 169 million tonnes in 2020-21 because of lower global demand. As steel markets recover, these volumes are forecast to increase, the REQ indicates. In the interim, some Australian mines have announced production cutbacks or temporary closures.
China imported 75 million tonnes of metallurgical coal in 2019 and it is thought that the country imported about 75 million tonnes in 2020 too. However, Chinese policy is causing uncertainty with widespread media reports that Australian coal is being held offshore. The REQ suggests that Australian exporters would have to consider alternative overseas markets if Chinese restrictions continue. In the interim, overseas coal producers, such as those in Canada, have already started diverting coal sales to China. Chinese imports of metallurgical coal are likely to reduce over time as China’s mines increase their output.
Meanwhile, India has announced plans to boost steel production and will need to lift imports of metallurgical coal. “As Australian cargoes into China have declined in recent months, many have found alternative buyers in India,” the REQ notes. India’s 2020 metallurgical imports are estimated at about 55 million tonnes and are forecast to rise to about 65 million tonnes by 2022.
Primarily used in energy generation, the thermal coal trade is estimated to have fallen for only the second time this century. The first time was in 2015.
World thermal coal imports are thought to have fallen by about 70 million tonnes. To put that in a shipping context, that decline in volume could otherwise fill about 368 capesize bulkers (assuming capesize capacity of 200,000 dwt with five per cent of that capacity allocated to stores, fuel and other materials).
The fall has been driven by a decline in demand in Europe and India. European appetite for thermal coal is declining as the region shifts away from coal for energy generation, the REQ says. Demand in south and south-east Asia has declined owing to the effect of COVID on energy demand and economic recovery. World demand is forecast to grow weakly as the global economy recovers from COVID and as countries move away from coal for energy generation.
China is the world’s largest thermal coal consumer but it is also the world’s largest thermal coal producer too. Domestic production has been ramping up and traders have also been buying greater volumes from Mongolia. Despite “firm demand”, the REQ says that China’s thermal coal imports will have fallen in 2020 by about 14 million tonnes to 210 million tonnes. Further volume declines to 216 million tonnes in 2021 and 212 million tonnes in 2022 are forecast. Meanwhile, back in October 2020, China stunned the world when it declared its intent to have net-zero carbon emissions by 2060. That goal is not compatible with increased or stable consumption of thermal coal.
India is the world’s second largest thermal coal consumer and it imported 189 million tonnes in 2019. Volumes are thought to be down by about 24 million tonnes in 2020, but exports are likely to recover to about 190 million tonnes in 2022 as economic activity resumes. However, India’s Minister for Coal and Mines has confirmed plans to stop thermal coal imports and to rely on domestic production from 2023-24.
Japan is the world’s third largest coal importer. The country imported 138 million tonnes in 2019. Imports for 2020 are likely to be down by about five million tonnes. After 2020 the situation is uncertain – Japan is building more coal-fired power plants but these are higher-efficiency plants and, furthermore, it is also retiring older, less efficient, coal-fired plants. Meanwhile, nine of the country’s nuclear reactors are due to restart in 2021 and a further four could come back online in 2022. Like China, Japan has also announced an intent for a net zero carbon policy. “This could have a material impact on Japan’s demand for thermal coal,” the REQ notes.
South Korea is another major coal importer, with 93 million tonnes in 2019. The 2020 volume is expected to fall to 85 million tonnes because of COVID. Like other nations, South Korea is turning to alternative sources of power and has declared an intent to become carbon neutral by 2050. The country’s thermal coal imports are forecast to decline over time.
Australia’s thermal coal exports are forecast to decrease from around 213 million tonnes in 2019–20 to 199 million tonnes in 2020–21 before rebounding to 222 million tonnes in 2021–22.
Some major Australian mines are now reaching the end of their lives, however there are offsets as there are increases in production at other mines around the country.
A “significant portion” of Australia’s thermal coal mines are loss-making although their woes may be alleviated by forecast increases in price. The REQ regards investment in future Australian thermal coal as “highly uncertain”, noting weak market conditions, capital expenditure reductions, write-downs and deferrals of final investment decisions. The REQ noted that many projects are in the feasibility stage “but many have not progressed for years”. Australia’s coal volume outlook is uncertain owing to Chinese, Indian, Japanese and South Korean policy, among others.