Monsters of Rock: How long will the thermal coal boom last?

Energy analysts warn high coal prices could accelerate move towards alternatives
Investors remain bullish on coal as Nathan Tinkler makes $50 million offer for Dartbrook coal mine owner Australian Pacific Coal
Lithium stocks shine and iron ore tip toes back over US$100/t

Analysts from the Institute for Energy Economics and Financial Analysis say high prices could be a double-edged sword for thermal coal, as Australian operators look to expand for the first time in years with the commodity at record prices.

Thermal coal is trading for around US$450/t, spurred on by Russia’s invasion of Ukraine.

That has prompted some analysts to suggest the shortage of fossil fuel power could drive countries to accelerate renewable targets, with little indication supply side and permitting issues that have exacerbated the energy price crisis in 2022 will subside any time soon.

IEEFA’s Simon Nicholas and Andrew Gorringe claim in a new report that countries like South Korea, Japan and Pakistan are abandoning new coal projects, shifting to domestic coal over imports and turning to different energy sources like nuclear or transition to renewables.

“Very high coal prices are a double-edged sword for the coal industry. At this stage of the energy transition, high prices will destroy long-term demand for coal even faster,” says Gorringe.

“Declining demand will impact mining employment. Even under the NSW government’s Base Case scenario, it projected that employment in coal mining will decline by an average of 600 jobs per year over the next two decades.

“A transition away from coal over the coming decades is certain. The only question remaining is whether that transition will be planned and orderly, or chaotic.”

Meanwhile, the report authors have raised doubts whether high CV coal from Australia will be preferenced over other, lower energy forms of the product traded by nations like Indonesia, given many of the developing nations who will be most reliant on coal for energy in the coming decades will be more price sensitive than customers in wealthy nations like Japan and South Korea.

Coal still on a high

In the short term coal remains on a high though, with companies who produce it looking to expand despite opposition to the industry from both local and national environmental groups.

The Dartbrook coal mine, the scene of a number of mining related deaths when it was in operation more than 15 years ago and strongly challenged by the local thoroughbred horse breeders in the Hunter Valley, was granted an operating extension to 2027 this year.

It is now the subject of a $50 million, $1 a share bid from a group led by Nathan Tinkler, who has tripled the previous offer by coal trader M Resources for its embattled owner Australian Pacific Coal (ASX:AQC).

The aim will be to get it back up and running before prices contract again, if indeed they do, with coal miners currently raking in a collective billions in profits.

Its neighbour MACH Energy received conditional approval from the NSW Independent Planning Commission this week to expand its Mt Pleasant mine from a capacity of 10.5Mt to 21Mt and extend its life to 2048.

Australian Pacific Coal (ASX:AQC) share price today:

Iron ore tops US$100

Iron ore futures stormed past US$100/t in afternoon trade, climbing 3.93% to US$100.25/t on the Singapore Futures Exchange.

It came after some ordinary trade data out of China yesterday.

But there has been some positive movement around the Chinese steel sector, which seems to be ramping up as mills who cut production to stem losses when margins went negative in June and July return to business.

According to industry monitor MySteel, Chinese miners ramped up iron ore fines consumption to provide sinter for their blast furnace operations.

Daily use of imported fines, mostly supplied from the Pilbara, rose to 548,500t a day between September 1 and 7, the highest since late June and 3.4% up on the week.

Miners were generally well supported today with lithium stocks the standouts and Fortescue (ASX:FMG) up almost five per cent.

Allkem’s (ASX:AKE) return to record highs (up 7.74% to $15.17 today) has been a boon for chairman Martin Rowley, who sold more than $2 million worth of shares after the lithium sector’s recovery from its early June selldown.