In January, metallurgical prices rose across the board. For the month, the Premium HCC FOB Australia averaged US$412/t, up from US$341/t the month prior and almost quadrupled from US$127/t in the corresponding period of 2021. Uncertainty around the Russia invasion of Ukraine at the start of the year applied pressure on the market.

The spot market for metallurgical coal in Asia reached its highest in late March. The export price of premium hard coking coal produced in Australia was US$670/t. High prices have been fuelled by Western sanctions on major metallurgical coal producer Russia, coupled with heavy rains and flooding, which hit the east coast of Australia during the March quarter.

However, since March, the coking coal price has begun to fall at a faster than anticipated rate, while thermal coal prices remained above US$400/t, as falling steel demand from major importing countries, including China, placed downward pressure on prices.

In July, the benchmark price for the Australian premium hard coking coal fell below US$200/t level for the first time in 2022, due to a strong supply response from Australia with the restart of Moranbah North, coupled with declining steel production. The metallurgical coal price bounced back significantly in August, back above US$270/t, as steel demand from major importing countries showed signs of recovery.

Despite the strong recovery in metallurgical coal prices in August, thermal coal prices were still trading at a significant premium. This unique disparity encouraged metallurgical coal producers to switch over and sell the product as “premium thermal coal”. Cost and yield were also improved as the coal was not required to be washed as much.

Some Australian and US coal miners have begun to sell second-tier metallurgical coal products as thermal coal since the price gap between these two products have become sufficiently significant. This switching trend has started to impact metallurgical coal prices.

The switching trend is likely to persist until the premium between these two products flips back. More companies are jumping on the bandwagon but are still cautious about being labelled thermal coal producers, which violates their existing ESG pledges, as well as financing.

Leading up to December, Metallurgical prices remained relatively stable, ranging between US$250 to US$270/t, as China showed signs of recovery in steel production, AME expects that metallurgical coal demand will increase over the next two years with strong demand expected from India and China.

Overall, the premium HCC spot price averaged around US$365/t in 2022, an increase of 62% year on year. The spot price for LVPCI and SSCC averaged US$328/t and US$284/t, increases of 101% and 83% year on year, respectively. With the severity of the Russia-Ukraine war and seasonal weather likely to be a key factor impacting supply volumes in key producing regions, AME expects prices to remain elevated into the beginning of 2023.

Imports & Exports

The Russian coal ban was a key factor for the import and export market in 2022. China and India have become key markets for Russian coal exports, absorbing a staggering amount as an alternative to expensive North American and Australian supply. On the other side of the coin, other nations are gradually reducing imports from Russian coal in accordance with the sanctions imposed by the EU and US. Western countries’ need to secure coal supply alternatives have boosted demand.

China has been firming up its metallurgical coal imports throughout the year and Mongolia has been the key supplier to the country. Domestic supply issues are also being resolved, with China’s domestic coking coal output continuing to increase throughout the year and Mongolian exports significantly ramped up as border restrictions ease. There has been reports that the Australia ban may be lifted after 20^th congress discussion in preparation for surging demand, but this has not been implemented.

China’s coking coal imports totalled 51.6Mt by end of October, rising by 28% from the previous year. The increase has been driven by steady growth in import volumes from Mongolia, setting a record.

India imported 55.35 Mt of metallurgical coal between January and October, a 2.2% increase compared from a year earlier. Despite import volumes remaining relatively stable during the period, the origin of this imported coal has changed drastically.

Australia was the largest supplier to India with 15.5Mt of metallurgical coal supplied. However, this volume represented a decrease of 24%, or 4.8Mt, as India continues to preference cheap Russian coal. Russia’s supplied volume surged 127% and reached 1.5Mt during this period.

Russia became India’s top supplier of coking coal during the year. Indian steel mills are estimated to have purchased over 4Mt of Russian coal by the mid-year, up 26% from a year earlier, driven by 30% lower average rates and supply issues from top exporter Australia.

India is also aiming to increase total coal imports from Russia to 40Mt by 2035, according to the head of the Russian Energy Ministry’s Coal Industry Department. The Russian official advised that the Indian government has entered a memorandum of understanding with Russia regarding cooperation on coking coal, a key steel-making raw material, for which domestic steelmakers are still dependent on imports.

As 85% of India’s coking coal demand is met through imports, the agreement with Russia aims to reduce India’s dependence on countries such as Australia, Canada, and the US. In addition, this cooperation will help to reduce the cost per tonne of steel production, due to lower transportation costs.

The US was the other key metallurgical coal supplier to India with 4.2Mt provided by end of October, a 142% increase from the previous year. This represents an unexpected surge in volume from the US as their products are not discounted like Russian coal and have longer freight distances. AME expects that this surge is due to India’s plans to diversify its imports to reduce reliance on Australian coal.

Japan imported 51.2Mt of metallurgical coal between January to October, a 3% decrease compared to the previous year. Australia was the largest supplier with 28.5Mt, while Russian import volumes fell significantly and recorded only 2.2Mt for the 10-month period. 

Turkey imported 3.81Mt of metallurgical coal during the first nine months of the year, a 9.8% decrease from a year earlier. Despite the lower volume, average import prices were estimated to be around US$386/t, a 189% increase from the previous year.

This large price increase was mainly due to the high spot prices experienced at the start of the year with key suppliers having production issues due to weather-related events. Australia was the largest supplier to Turkey, sending 1.77Mt of metallurgical coal during the period, remaining the country's key supplier. The US was the second largest supplier with 1.08Mt, followed by Canada with 0.42Mt. AME expects Turkey to surpass France to become the second-largest importer of metallurgical coal in Europe after Germany.

Closures & Production Cuts

Whilst there weren’t many closures during the year due to healthy market prices, some producers cut production guidance due to shortages of labour and weather-related issues. With the recent changes in the coal royalty rate, Australian players have officially come out and explained the difficulties high royalties will cause and announced suspensions on any future greenfield projects.

BHP has placed its Blackwater South coking coal project on hold, as the company evaluates the impact of the new coal royalties. BHP advised that there has been an increase in the sovereign risk associated with Queensland, as the royalty regime was changed without involving any engagement with industry. Blackwater South is a greenfield metallurgical coal mine that could produce up to 8Mtpa for approximately 90 years.

Australia’s South32 has announced that it will not proceed with the expansion project for the Dendrobium coal mine, as expected financial returns are not enough to justify the US$700m up-front capital investment the project requires. With the exhaustion of coal reserves at Dendrobium’s existing mining area, South32 initially aimed to exploit the unexplored underground mining Area 5 6. This is the second project the company has decided not to pursue, despite meeting requirements.

Canadian miner Teck Resources has lowered its guidance for coal production in 2022 to a range of 23.5Mt to 24Mt. The company reduced its lower and upper limits by 1Mt and 1.5Mt, respectively, from an initial target of 24.5Mt to 25.5Mt. Reductions have been driven by the low output recorded in the June quarter, due to scheduled maintenance that required the suspension of two units of coal handling and preparation plant. 

New Mines, Restarts and Expansions

Unlike thermal coal, new greenfield projects have started to hit the metallurgical coal market in 2022. Prices of metallurgical coal remain high enough to incentivise new players to commence small-scale projects, which are expected to drive the short-term supply market.

In April, Pembroke Resources began construction of its Olive Downs coking coal project in Queensland, Australia. The proposed project is an open-cut mine targeting to produce up to 15Mtpa of predominately semi-hard coking coal and PCI. The product will be transported by rail to the Dalrymple Bay Coal Terminal to be exported to the Asian market, with a focus on Japan, South Korea, and India.

The project is anticipated to create about 700 jobs during the construction stage and approximately 1,000 jobs once production operations start in 2023.The Olive Downs project will include major infrastructure, such as a coal handling and preparation plant, rail spur, train load-out facility, coal conveyor, stockpiles, electrical transmission lines, water pipeline and access roads. The federal government provided a loan of AU$167.5m (US$124.7m) to support the mine’s first stage of development.

Coronado Global Resources is planning to expand its Buchanan coal mine in the US. Coronado plans to invest around US$169m to increase production capacity at the complex, creating 181 additional jobs. AME anticipates that the proposed expansion is designed to meet surging demand from European countries, with the EU looking at alternative sources to replace Russian coal. 

Buchanan is an underground mine near the town of Vicey in Buchanan County, Virginia, that has been in production since 1983. The mine produces a mix of low volatile hard coking coal and PCI products, which are sold to both US steel makers and export customers.

Metarock Group, formerly Mastermyne Group, has announced that the restart of the Crinum underground coal mine has been postponed for another year until July 2023. With the delay, the mine aims to minimise costs and use the time to streamline the major fixed infrastructure.

Metarock handles the mining services of the metallurgical coal mine, located in the Bowen Basin in Queensland. Crinum is part of the Gregory-Crinum complex, which comprises the Gregory open-cut coal mine and Gregory coal handling and preparation plant.

The mine's 100%-owner, Sojitz Corporation, initially expected to recommence operations at the mine in the second half of 2021. However, a part of wall and ceiling fell in the mining tunnel in September 2021, interrupting the redevelopment and delaying the restart to the September quarter of 2022. When operations at Crinum resume, the Gregory Crinum Complex will be able to produce a range of 3Mtpa to 3.5Mtpa of metallurgical coal.

The restart of Cameron Collieries’ Donkin Coal mine is well underway with re-commissioning of the CHPP completed in October. Donkin restarted its operation in September after a two-year suspension due to a geological issue. Donkin, an underground bord and pillar mine, is expected to produce around 0.5Mtpa of export metallurgical coal and domestic thermal coal.  Metallurgical coal produced at the mine will be directed to international markets including Europe, Brazil, and Asia.

The mine is strategically located only 30km away from the export terminal which allows the company to truck the product. The previous Donkin product has typical washed coal specifications of approximately 10% total moisture, 1% ad moisture, 3% ash, 39% volatile matter and 3% total sulphur. AME expect that Donkin may focus on producing thermal coal product initially to take advantage of the high thermal coal prices.

In October, Australian Cokal Limited commenced production in Indonesia at its Bumi Barito Mineral (BBM) metallurgical coal mine, which is aiming to produce 2Mtpa of saleable coal. BBM is an open-cut coal mine in the North Barito Basin in Central Kalimantan. Cokal holds a 60% interest in the mine, with the remaining interest distributed among multiple firms in Indonesia.

The development of BBM is divided into two stages from Pit 3 to Pit 2 and is expected to produce 200kt of saleable coal in the December quarter of 2022. The mine is expected to have a product split of 120kt of coking coal and 80kt of LV PCI. Cokal aims to ramp up production to 1.6Mt in 2023, comprising 1Mt of coking coal and 600kt of PCI. From 2024, the production volume of saleable coal is planned to be raised to 2Mtpa, with 1.2Mtpa of coking coal 800ktpa of PCI.

Futura Resources’ Fairhill and Wilton projects have received approval from the Queensland government. The projects are located adjacent to one another about 50km northeast of Emerald in the central Bowen Basin region. Coal will be processed using existing infrastructure at the neighbouring Gregory-Crinum mine. 

The two mines are estimated to have a global resource of 2.6bt, with over 700Mt located in less than 100m depth. At full capacity, Fairhill and Wilton are expected to produce over 3Mtpa of metallurgical coal, which after processing will be transported by rail to the Port of Gladstone and exported to key international markets.

Futura Resources aims to start construction in the first quarter of 2023 and plans to start production within six months. Futura Resources CEO Ben Dunlop said: “We see ourselves as a sustainable, low environmental footprint producer utilising nearby existing infrastructure, including coal processing facilities which will be 50% powered by renewable energy by end of 2023.”

Raspadskaya Coal, one of the largest metallurgical coal mining companies in Russia has started operatiosn of a new longwall system at the Raspadskaya mine complex. The new longwall system can operate at a 300m wide face and up to 1.6km long panel. The implementation of the new longwall face has been completed with capital mining, tunnelling and installation work being done at the face. Once fully operational, the longwall system can produce up to 9,900tpd of coal or 3Mtpa depending on the mining and geological condition.

Raspadskaya is a coal complex consisting of both underground and open-cut mines located in the Kemerovo region of Russia. The Raspadskaya underground mine produces Zh to GZh coal, which is equivalent to medium- to high-volatile semi-hard coking coal. Product coal has ~11% ash, 38% volatile matter, 0.58% sulphur and 0.06% phosphorus.

Mergers & Acquisitions

The M&A market was very active in the metallurgical coal scene in 2022. It was predominantly driven by small players acquiring second-tier asset from the big players. Stanmore stands out amongst them all, becoming a top 10 metallurgical producer with the recent acquisition of BMC.

Following the 80% acquisition of the BMC asset, Stanmore has announced that it has entered into a share sales agreement with Mitsui & Co. to acquire the remaining 20% share in Stanmore SMC Pty Ltd (SMC) in August. The purchase price was announced at US$380m, which will be reduced by any dividend paid to Mitsui prior to the completion of the sales process. Once the transaction is complete, Stanmore will own 100% of SMC.

Glencore has sold its 6.4% interest in Yancoal Australia in a deal worth A$422m (US$293m). The agreement involved the sale of 84.5m shares traded at A$5 (US$3.57) each. Although Glencore has not confirmed the specifics of the deal yet, the giant miner stated it did not consider the shareholding in Yancoal to be a core asset for the business. The agreement closely follows Glencore’s alleged rejection of Chinese Yankuang Energy’s offer to buy Glencore’s minority stake for US$3.6 per share, as the miner consider the bid considerably undervalued the stock.

South32 is still looking to sell its 50% interest in the Eagle Downs metallurgical coal project in Queensland, Australia. The Eagle Downs project was put on hold in January 2021. The last Feasibility Study discouraged progress as returns were not in line with the capital management framework. South32 has recently reported that the company has not received acceptable offers and is still searching for potential divestment options.

Bowen Coking Coal has completed the full acquisition of New Lenton Coal, which currently holds a 90% interest in the Lenton joint venture. The Lenton joint venture features the Burton mine, the Lenton project, and the existing Burton plant, which is located close to Bowen's existing assets. The assets, located in Queensland, Australia, are expected to have a total processing capacity of up to 5Mtpa.

In December 2021, Bowen announced the binding sale and purchase agreement to acquire New Lenton Coal from fellow coal miner New Hope Corporation. Under the terms of the agreement, Bowen will pay A$20m (US$13.6m) upfront, as well as potential milestone and royalty payments up to a maximum value of A$77.5m (US$53m). This transaction will improve the diversity of the company’s portfolio of coal assets, providing the company the opportunity to establish a new processing central point in the Burton Complex.

Ramaco Resources has finalised the acquisition of a 100% interest in Maben Coal LLC from Appleton Coal LLC, through the company's subsidiary Ramaco Development. The purchase price of US$30m includes US$9m to be paid in cash at closing and US$21m to be paid from the proceeds of a two-year secured note payable to Investec Bank.

Maben Coal accounts for around 33Mt of minable coal over 28,000 leased acres in West Virginia, located in Wyoming County and Raleigh County. Maben holds areas with high quality low-vol coal in the Sewell, Pocahontas 3, Pocahontas 4, and Pocahontas 6.

Ramaco aims to start production from the Sewell seam, from the March quarter of 2023, using surface and high wall mining methods. Ramaco will also consider the development of the Pocahontas 3 and the Pocahontas 4 seams, which would add about 1Mtpa at full production with construction of a new preparation plant and loadout facilities.