October 26, 2022
Current prosperous conditions for Australian coal exporters look set to continue, according to the latest government forecasting from the Department of Industry’s Office of the Chief Economist. While the unprecedented coal prices seen earlier this year can be expected to ease, the underlying market fundamentals are likely to remain solid into the near future.
Buoyed by stratospheric thermal and metallurgical coal prices, Australian resources and energy export earnings reached a record $422 billion in the financial year ending June 2022. The government’s optimistic forecasting has this figure peaking at $450 billion for this financial year, before the situation finally starts to inch back down to Earth. And while iron ore was our top export earner in 2021-22, combined thermal and metallurgical coal exports are predicted to rake in $120 billion in 2022-23, enough to just scrape past iron ore into the top position.
Of course, predictions for the future are never fully reliable. The interplay of factors that have landed coal prices into their current situation could hardly have been foreseen twelve months ago. And uncertainties persist, from the Covid-19 pandemic to La Nina weather cycles, the Russia-Ukraine situation, the global energy transition, and declining investment in thermal coal capacity. Nonetheless, the government thinks coal export volumes will begin to tick upwards in the next couple of years after recent constrained supply. This will support export earnings as coal prices ease back. Australian premium hard coking coal prices are expected to settle to US$220/t by 2024. Meanwhile, Newcastle thermal coal prices are forecast to drop to US$125/t over the same period – well above historical averages, but quite the contrast from current highs, which have peaked well above US$400/t.
Looking further into the future, it is metallurgical coal that retains stronger long-term prospects than thermal coal. Exploration expenditure is likely to trend towards met coal, as thermal coal contends with greater challenges around social licence, financing, and government policy. Indeed, this will limit the ability of thermal coal producers to respond to current high prices with increased supply, assisting those thermal spot prices to remain very strong into the near futur
By National Research and Policy Director Alison Goodwin