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Thermal Coal Spot Price Tumbles 25 Percent, Putting Pressure on Some Producers



May 18, 2020 - The spot price for thermal coal has fallen 25 percent in the past month with one leading analyst saying it is because of a reduction in demand and a fundamental global shift to renewables.

Mining analyst Tim Buckley, from the Institute of Energy Economics and Financial Analysis, said the fall had “left a significant number of Australian and Hunter Valley thermal coal producers under water and globally there is a significant impact”.

He estimates 60 percent of global coal production is now unprofitable and 30 percent of Australian producers are also running at a loss.

The chief executive of the New South Wales Minerals Council, Stephen Galilee, acknowledged the industry faced challenging times ahead, but said he expected good prices to return, especially as key markets like China resumed normal activity after COVID-19.

“We’re a cyclical industry, we’ve seen low prices before … and the issue now is how long these prices will be sustained,” he said.

‘A Strong Future’

Galilee acknowledged there was a clear contraction in the thermal coal market reflecting the shift to renewables, but he said the demand for coal in places like South Korea was still strong and he saw a strong future.

“We export coal to 19 different countries through the Port of Newcastle and Port Kembla and Korea has 24 operating coal stations, with four under construction that may still be completed.”

Queensland is insulated from this price shock as its mines produce mainly coking coal for steel production, but Victoria’s industry will be facing similar challenges to NSW.

Renewables Cheaper than Coal

Buckley said governments around the world were moving to renewables.

“A decade ago coal fire power was a low-cost source of supply, while wind and solar were expensive, but today the reverse is true.”

He said India had just put out a tender for the supply of a large amount of energy but was offering a record low price of just $53/megawatt hour.

“That is 30–40 percent cheaper than a new coal fired power plant could deliver.”

He said South Korea, the third largest destination for Australian coal, had just announced its electricity plan for the next 15 years.

“They will have a reduced reliance on nuclear and coal and will increase renewables from 15 to 40 percent.”

He said other markets were shifting quickly to renewables.

He said reports out last weekend showed coal imports in India were also down 29 percent year on year and their coal minister wanted imports to cease imports by 2024.

“In the Philippines, their largest energy provider announced they are exiting coal by 2030 and have already started divesting 100 percent of their coal assets.”

Investment Exodus

The outlook does not look good for companies heavily into thermal coal.

The share price of American giant Peabody has fallen 80 percent in the last 12 months.

Buckley said there had been 32 announcements this year alone from global investment companies divesting their coal assets.

That includes Westpac, Allianz and major banks in Japan and the United States.

“They’re literally running for the door, they’ve thrown the thermal coal industry under the bus.”

Westpac has followed the Commonwealth Bank’s lead in moving towards a zero emissions investment policy.

The company said it would still invest in coking coal but is aiming to set up a $3.5 billion fund to fund climate-friendly investments over the next three years.

Tim Buckley said the industry and governments need to plan for a transition and he welcomed the work being done by the University of Newcastle, the Hydrogen Taskforce and the Committee for the Hunter who were all looking for new opportunities in that region.

“We’ve got a one to two decade transition timetable and I think it’s really beholden on the Government to make sure the industry and the workers don’t get left behind.”