The Australian thermal coal sector has been rocked by a series of recent developments. AME forecasts that Australia will export 213Mt of thermal coal in 2023, up by 11% from 2022 levels. Production will be supported by the restart of New Acland and Dartbrook coal mines and more favourable weather.
The
parallel easing of China’s COVID-zero policies and the end of the Chinese ban
on Australian coal has reopened what was once Australia’s second largest market
for thermal coal.
However,
the upside of these developments for the Australian thermal coal sector is
uncertain. Much has changed in the global coal trade since Australian suppliers
were locked out of Chinese markets.

Energy
security is now a prime variable in national planning, and supply chains have
shifted to match the new geopolitical landscape. China’s domestic coal output
reached a record high in 2022, suggesting a desire by authorities to increase
energy self-sufficiency.
China’s
choice of source of thermal coal imports has also changed to favour Russia,
which sells its thermal coal at a discount due to ongoing sanctions. The upshot
of these developments is that although Australian coal exports to China will
resume, they will not reach the levels seen in the previous decade.
In
the medium term, Japan and South Korea will remain the largest destinations for
Australian thermal coal. South Korean coal imports reached a record high in
2022. Australia was the largest source of coal in South Korea, having a market
share of 44% by value.
Australian
coal producers benefited strongly from the disruption in the global energy
supply chain in the wake of the Russian invasion of Ukraine. The record revenue
from coal exports was offset by unprecedented wet weather as the La Niña
weather event battered the Australian eastern seaboard for the third year in a
row.
Heavy
rains caused operations at some mines to be suspended and delayed the shipment
of coal at coal terminals. This resulted in a decline in coal output from 2021
levels from 191Mt to 189Mt. Thermal coal export volumes were at their lowest
since 2013.
Wet
weather is expected to subside in 2023, which will see supply-side disruptions
drop off. Coal miners’ profit margins will be boosted by declining production
costs as weather becomes more favourable. However, prices are also expected to
decline from record highs throughout 2023.
The
March of ESG
Australia
has committed to reaching net zero carbon emissions by 2050. The pledge has set
the regulatory pace for a wind-down in domestic demand for coal. The government
plans to ensure the decarbonisation of the economy by setting a mandate for
major carbon emitters to reduce emissions below a baseline level.
Coal
mines are expected to be affected by this legislation. Coal mining costs may
increase through the adoption of emission reduction strategies or the
purchasing of carbon credits.
The
outlook for greenfield thermal coal mine developments in Australia is not
favourable. Federal and state governments, local regulations, and public
sentiment have made the process of obtaining approval for new coal mines
expensive and risky.
Additional
capacity in the coal sector is likely to come mainly from expansions of
existing mines, such as the recently approved expansion of the New Acland coal
mine.

However,
the potential upside provided by mine expansions is still subject to a
favourable regulatory environment. The recent refusal of an extension to the
operating life of Glencore’s Glendell mine by 20 years to 2044 is a sign of the
headwinds in the coal sector.
The
biggest single contributor to growth in coal export output in the medium to
long term will be the Carmichael coal mine, which is expected to complete its
production ramp-up in 2025.
Domestic Quotas
The
bumper year for Australian coal exporters has led to soaring power prices
domestically.
Australia
currently sources around 50% of its electricity from coal-fired power station. Coal-dependence
increases to 70-75% in the coal mining hubs of New South Wales (NSW) and
Queensland.
The
high consumer electricity prices have prompted the government to impose a coal
price cap of A$125/t. The NSW Government also intends to introduce a
requirement for coal mines to reserve between 7 and 10% of thermal coal
produced for the domestic market.

Major
Producers
Australia’s
Whitehaven Coal (WHC) has lowered its raw coal production guidance from a range
of 20-22Mt to 19- 20.4Mt for 2023 fiscal year, as La Niña has curbed output
from its open cut operations. WHC’s flagship Maules Creek coal mine is now
expected to produce 10.3-11Mt, down from an existing guidance of 11.7-12.6Mt.
Australian
New Hope Corporation (NHC) has scheduled the restart of New Acland thermal coal
mine by the end of FY2023, after acquiring a water licence in October. NHC aims
to produce 2.5Mt of saleable coal in FY2024 and expand output to 5Mtpa through
FY2027. Initially, the project was expected to boost New Acland's production
from 4.8Mtpa to 7.8Mtpa and extend the mine's life for 12 years to 2034. New
Acland has been on care and maintenance since November 2021 due to exhaustion
of coal reserves in the existing mining area.
Yancoal,
the majority owner of Moolarben, the largest source of Australian export
thermal coal, reported production disruptions caused by wet weather throughout
2022. Production issues during 2022 are expected to see costs increase from
A$66/t in 2021 to an estimated A$84-89/t in 2022. The miner has obtained
permission to discharge excess water from its storage facilities as it seeks to
optimise operations for 2023.
Glencore,
the operator of the coal mines across NSW and Queensland, is facing renewed
pressure from major institutional investors to reduce its reliance on coal. The
diversified miner was presented with a proposal to disclose how its projected
thermal coal production aligns with the goals of the Paris agreement. The
motion, which was sponsored by major investment houses such as HSBC, will head
to a vote at the company’s general meeting in May.