April 27, 2023
Recent skyrocketing commodities prices have started making their way back down to Earth, but big mining company profits are in no danger of disappearing any time soon. According to the latest forecasts from the federal government’s Department of Industry, Science and Resources, thermal and metallurgical coal prices are set to remain above historical averages over the medium-term future.
The forecasts expect average sale prices of 6,000 kc Newcastle thermal coal not to drop below US$150/t until 2025. And prices are predicted to remain above their 2015-2020 average for the entire forecast period (see graph).
Meanwhile, prices for Australian hard coking coal are projected to remain above US$200/t on average until 2025, and above US$150/t for the entire forecast period which runs to 2028.
As more and more countries look to make progress on their emissions goals, so-called ‘critical minerals’ such as lithium and base metals, are set to take on a bigger role within Australia’s enviable export portfolio. But, throughout the energy transition, many countries will also be looking towards Australian coal as a higher grade option for their thermal power generation or to feed their steelworks.
Australian coal exports are high quality and in-demand. This means that Australian product (especially our metallurgical coal) is well-placed to attract buyer interest even as global demand for coal commences its decline, as is widely expected to occur this decade. In fact, the government thinks our met coal exports will actually increase, from 164 million tonnes this financial year, to 178 million tonnes in the 2026-27 financial year. But moderating prices would see export earnings drop from AU$63 billion to around AU$36 billion, a result more in line with earnings in the years prior to 2021.
The future for thermal coal is more challenging. Nonetheless, Australian exports retain a robust outlook over the next 5 years, with diminishing global demand likely to affect lower grade coal first. Export volumes are expected to remain steady at around 195mt over the 5-year forecast period, with mine closures and openings in balance. However, falling prices will return export earnings to more typical levels – export earnings for thermal coal are forecast at $19bn in real terms for 2027-28, similar to what they were prior to the global upheaval stoked by Russia’s invasion of Ukraine.