September 24, 2020
Despite the second waves of the pandemic in Australia, the USA and Europe, Australian mining including coal is doing surprisingly well – including coal. But in looking to the future there are some big uncertainties – near term and longer term.
Coal prices are way down, and have been that way for most of 2020, with mildly-reduced demand due to the pandemic making it worse. Thermal coal spot prices have been below US$50 per tonne for many weeks, while coking coal has been in the low US$100s per tonne. But there are signs of improvement – with December spot contract bidding heading above US$60 per tonne. Just as well, as many thermal coal mines are losing money at current spot prices.
There are job losses in coal, with the announcement of 60 contractors losing their job at Glencore’s Glendell mine being the latest. But the losses have been small – a couple of percentage points – relative to the huge numbers of jobs lost in many other industries. While global demand for coal has slowed, the decline has generally been modest as homes still need the power on, and as the major Asian markets to which Australia exports have fared better than most.
Australian iron ore has been booming (due to non-pandemic issues – production restrictions at major competitor Vale in Brazil) and so have some other minerals like gold (that always does well in times of uncertainty).
There have been no clusters of the coronavirus in mining, which is a credit to all in the industry, and there have been no government-imposed shutdowns as has been common in other industries (and especially Victoria). The biggest problem has been in FIFO across state borders.
In the near-term as economies as Asian economies pick up again coal demand and prices should recover (even if the pandemic continues in the USA and Europe). The biggest uncertainty is the US presidential election in early November and the chaotic and unpredictable actions of President Trump.
And in the medium to long term there are more uncertainties. Australian exports – not just coal – continue to be punished by China as part of its political and trade wars with the west. That’s the second biggest market for our thermal coal. The biggest market – Japan – has announced it will continue with coal power but is rebuilding much of its coal power fleet to produce 20-30% less emissions and will use that much less coal. South Korea – the third biggest market – has said it will close half of its 34GW coal power fleet by 2034.
None of that bodes well for thermal coal exports. And just this week China’s president-for-life Xi Jinping told the UN that China would seek carbon-neutrality by 2060. Exactly how the biggest coal producer in the world (around 3.5 billion tonnes and millions of jobs) will do that is very unclear, but they are likely to seek to reduce fossil fuel imports first in order to spread domestic restructuring over a longer period.
China’s pledge will send the long term commodity forecasters back to their spreadsheets and we don’t have their results in the public arena yet. It’s hard to see coal doing well.