While coal demand is expected to reach new highs this year, coal miners are facing obstacles to get new projects into production, according to Wood Mackenzie (WoodMac).
“One of the interesting things is we actually expect global coal demand to peak this year at just over seven billion tonnes,” WoodMac principal analyst Rory Simington said during a recent press briefing.
“This is a result of higher coal usage in Europe as a reaction to the reduction in gas supply last year. As you probably know, a number of European utilities and countries extended operations of coal plants that were due to close, and a whole heap of closure dates were extended.”
Simington said China has also been a driver of higher coal demand.
“Coal is the major source of energy for China, so the recovering Chinese economy has had quite a big impact in terms of overall coal consumption,” he said.
Australian coal miner New Hope said in its March quarterly report this week that it had “refreshed” its relationships with China and recently completed its first sales since China’s ban on Australian coal was lifted earlier this year.
This will see New Hope’s first China-bound coal shipments since the ban take place in the June quarter.
“The robust demand from China of lower energy product has provided an outlet for a portion of our coal over the low season,” New Hope said in its quarterly. “Imports in key markets are expected to increase in the coming months, with continued tight global supply expected to provide support to pricing for higher CV (calorific value) coal.”
While the short-term prospects are strong, Simington expects Chinese coal import demand to “decelerate very quickly” in the late 2020s as it prioritises its own domestic coal production.
“The Chinese Government has been pushing very hard in terms of domestic production and when you combine that with the declining demand that we’ve got, particularly in the coastal areas of China where a lot of the imported material is consumed, the demand in those areas is going to be falling quite quickly,” Simington said.
Simington said the coal market, in particular thermal coal, is experiencing greater difficulties in securing financing as the renewable energy transition intensifies. This is seeing miners divert their growth strategies away from coal.
“The majors basically aren’t interested (in investing in coal) and even a lot of mid-level miners are targeting other areas of business, basically any other area of their business except for thermal coal,” Simington said.
“There’s a lack of willingness, (and) even if you are keen, finding a bank that you’ll be able to get finance from is virtually impossible now – it’s very much around private equity and alternative sources of funding.
“Getting financing is becoming a really substantial issue particularly for the thermal coal pipeline.”
But as the renewable energy transition finds it feet, there will still be coal demand, leading to coal price volatility in the years to come.
“If we look at the declining production profile from currently operating assets, even though we have a very significant decline in the amount of demand, we still need projects, but those projects are looking increasingly difficult and challenged,” Simington said.
“So it is likely that we’re going to see structurally higher prices but also … a level of volatility as we have hot summers or periods of higher demand.”
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