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Investment in Metallurgical Coal Appears to Prosper, Though It Has a Smaller Market Share



January 1, 2021 - More-advanced coal mining projects focus mainly on coking coal and include 40 Mtpa capacity of met coal and cumulative capacity of 24 Mtpa to produce both met and thermal coal. Even though thermal coal has triple the market size of met coal, met coal projects appear to be favourable to investors. By contrast, thermal coal projects account for 54% of the less-advanced projects.

The stronger investor interest in met coal projects can be attributed to the risk and uncertainties linked to thermal coal projects posed by climate change policies and public opposition. Coal-fired generation has readily available substitutes that have become more economical in recent years and are climate-friendly such as wind and solar PV for power generation. By contrast, substitution of steel production from iron ore at scale without coal is not expected in the near term. This is illustrated in the European Union, which despite its policies to eliminate thermal coal from the energy mix, has included coking coal in its list of critical raw materials. This is also reflected in the behaviour of some companies, like BHP's decision to focus on higher quality coking coal and to sell its 80% stake in Australia's BHP Mitsui Coal joint venture that mines thermal coal. Anglo American has also announced intentions to reduce its exposure to thermal coal, while maintaining coking coal production.

An important caveat to analyse the data above comes from the different visibility of the different exporting countries. Whereas in Australia, where most of met coal projects are located, the list is exhaustive, in other countries projects are more difficult to track.