Aussie coking coal miners set to step up the pace as China pleads for more
Australia’s metallurgical coal production will grow 7 per cent by 2022 driven by an uptick in price, according to one analyst.
Metallurgical coal is a low-ash, low-sulphur and low-phosphorus coal that can be used to produce high-grade coking coal – an essential part of the steelmaking process.
Robust steel demand from China, India and Japan, which accounted for 70 per cent of Australia’s metallurgical coal demand in 2017, will contribute some stability to seaborne prices, S&P Global Market Intelligence senior research analyst Richard Foy said at the Brisbane Resources Round-up conference this week.
Prices for both coking and thermal coal have both more than doubled since the market bottomed out in 2016.
The World Steel Association forecasts global steel demand will reach 1.62 billion tonnes this year – an increase of 1.8 per cent over 2017.
Global steel demand is expected to grow a further 0.7 per cent to 1.63 billion tonnes in 2019.
“We expect to see Australia’s metallurgical coal production increase from 182Mtpa in 2018 to 195Mtpa by 2022, due primarily to the ongoing price recovery encouraging both greenfield and brownfield developments,” Mr Foy said.
Greenfields is exploration done in new areas where mineral deposits have not yet been discovered.
Brownfields is exploration done close to previously discovered deposits and mines.
This is the type of exploration usually done by producers to grow a resource or reserve — to boost production and extend the mine life.
Growing and sustained steel demand from primary markets, alongside pollution cuts in China, has driven increased demand for Australian coal products.
But Mr Foy said there is some potential risk to supply coming from the increase of thermal coal prices, which could incentivise producers to switch metallurgical coal products to a premium thermal product.
The prices for high quality 6000 kilocal coal – which Australian miners are known for – have risen, while prices for lower grade 5500 kilocal coal have fallen since June.
Higher quality coal means power stations can burn less to produce the same amount of energy.
Met coal players
There are about five ASX-listed metallurgical coal miners with operations in Australia.
Bowen Coking Coal (ASX:BCB) is exploring ground in Queensland’s Bowen Basin.
The Bowen Basin, a 60,000 sq km area in central Queensland, hosts Australia’s biggest coal reserves and virtually all of the known mineable prime coking coal, according to the Bowen Basin Underground Geotechnical Society.
Junior Stanmore Coal (ASX:SMR) picked up Vale’s closed Isaac Plains mine in Queensland in 2015 for a measly $1.
In the last financial year, the miner reported record revenues of $208.1 million — up 51 per cent from 2017 – and a gross profit of $52.3 million.
At the end of the 2018 financial year, it was debt free, paying dividends, and “well on-track for a 50 per cent increase in production over the next year”, the company said.
Meanwhile, Laneway Resources (ASX:LNY), MC Mining (ASX:MCM) and Wollongong Coal (ASX:WLC) all have projects in New South Wales.