Coal Expected to Surpass Iron Ore as Australia’s Top Export

Thanks to a surge in demand and a subsequent thermal coal price hike, Australia’s coal sector is expected to become the country’s largest export earner, generating approximately AU$117.9 billion during the 2017-2019 period.

The bulk of the coal revenue is expected to come from the 2017-2018 production year, where AU$ 60 billion will be brought in. That total consists of AU$37.5 billion (182 million tonnes) of metallurgical coal, and AU$22.7 billion (200.5 million tonnes) worth of thermal coal.

“Coal is a cornerstone Australian industry built on the efforts of hard-working Australians which supports regional jobs and communities. It has a strong future which can meet the requirements of a modern economy,” Greg Evans executive director of the Mineral Council of Australia (MCA) said in a press release.

While metallurgical coal is projected to bring in more than AU$37 billion, thermal coal prices have spiked in recent weeks and have now surpassed US$120 per tonne for the first time since 2012. The price surge marks a 140-percent climb from 2015/16 lows.

The hike has been attributed to a strong demand from China as the country continues to rapidly expand its energy grids to fuel residential and industrial growth. While Australian coal producers are benefiting from Chinese expansion, Indonesia has seen the greatest increase in coal demand from the Asian country.

“Indonesian shipments to China saw the most gains, estimated to reach 61.8 million tonnes or approximately 49 percent of Chinese imports in the first 6 months of 2018, up from 46.3 million during the same period in 2017,” ship brokerage Banchero Costa said in a note to clients.

Similarly, imports from Australia made up 42.84 million tonnes or 34 percent of China’s imports during the first half of 2018.

However, China isn’t the only market for Australian thermal coal which is considered high-energy, low-ash and matches the needs of Asia’s high-efficiency, low-emissions (HELE) coal-fired power plants. Australia’s high-grade metallurgical coal is also amongst the world’s best for modern steel making, both will be increasingly needed as Asian countries expand their infrastructure and industry.

Asia’s import demand for thermal coal alone is projected to shoot up by 400Mt by 2023.

Based on the strong performance of both metallurgical and thermal coal over the last 12 months, the MCA believes the long-term sustainability of the current coal market is underpinned by three key factors. Primarily, the country’s highly productive coal companies; Australia’s proximity to major markets; and strong regional economic and population growth.

“Governments across Australia need to ensure that sensible policy settings are in place to secure the economic, jobs and social dividend from the strong demand for coal in our region,” added Evans.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.