While both coking coal and thermal coal are often tarred with the same brush by climate change proponents, the same can’t be said for the demand picture in 2020.

This year is shaping up to be vastly different for these two types of coal, with consultancy Wood Mackenzie forecasting that they are moving in opposite directions.


Metallurgical coal

Metallurgical (met) 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.

Wood Mackenzie noted there were several trends that could offer growth opportunities for met coal.

Firstly, it noted there were early indications of stabilisation in the global economy with modest growth expected in developed countries.

China is looking to reverse its lowest growth rate in decades following its recent phase-one trade deal with the US.

Given that the slowdown in Europe was driven by a contraction in manufacturing as global trading conditions were hit by the US-China trade war, the same treaty could also help drive growth there.

The consultancy also pointed to government stimulus in China and India as a key driver for demand growth.

China kicked off 2020 by injecting $US115bn into its economy through increased bank lending, while the various stimulus measures undertaken by the Indian government since August last year could boost its economy.

Additionally, Wood Mackenzie expects Chinese crude steel demand to peak in 2020, which is tipped to drive coal imports to similar levels as in 2019 despite any trade restrictions.

Large Chinese coastal mills are also likely to retain their appetite for premium Australian hard coking coal.

On the flip side, there are some challenges for the met coal sector.

The International Maritime Organisation (IMO) requirement for all ships to to use marine fuels with a sulphur content no greater than 0.5 per cent as of the beginning of this year is expected to drive bulk shipping rates up.

Wood Mackenzie expects freight rates to eventually compensate shippers for using the costlier compliance fuels and that the impacts would be felt most in the second half of 2020 and possibly for a few years.

For Australia, the growing risk of direct impacts from drought and fire on operating mines could throw up challenges for those trying to bring new supply to the market.

The rash of mine fatalities in 2019 is also likely to result in increased regulations for mine safety.

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Thermal coal

While reports of thermal coal’s death have been greatly exaggerated, Wood Mackenzie believes the seaborne thermal coal market is facing numerous challenges.

The consultancy noted that China’s domestic thermal coal market remained oversupplied despite a series of unconnected mine accidents thanks to the continued ramp-up of new projects.

This is expected to put downward pressure on seaborne imports as well as keep global low-rank coal prices weak in 2020.

Exporters hoping to find relief from the other Asian giant may be disappointed to know that while India’s economy is expected to recover and send demand for coal up, improvements in domestic coal supply could dampen demand for imports.

Low cost liquefied natural gas (LNG) also continues to drag on coal demand in Europe, which is further exacerbated by the mild winter.

However, global coal-fired power capacity is expected to grow by 28 gigawatts in 2020 as retiring capacity in Europe is more than offset by new units starting up in the Asia Pacific region.