Australia cuts metallurgical coal export forecast

Australia has downgraded its forecast for metallurgical coal exports this year due to a slow recovery in domestic production and relatively weak demand in Asian markets, led by China. Although Australian coal exports will increase compared to 2023, the country’s authorities expect coal prices to fall in the coming years. The decline in demand in Asia, according to analysts, will not lead to a reduction in coking coal production in Russia, but will reduce the margins of coal companies.

Australia has cut its forecast for metallurgical coal exports in the financial year ending June 2024 from 166 million tonnes to 161 million tonnes, Platts writes, citing the country’s Department of Industry, Science and Resources. The lower forecast is explained by only a partial recovery in domestic production.

“Australian metallurgical coal production and exports have been hampered by poor weather and logistics issues in recent years,” the department said. Also impacted by lower demand from several importers in Asia, which reduced steel production. Historically, the largest importer of Australian coal, China, still purchases relatively small volumes of it, despite the lifting of trade restrictions in the form of an informal embargo.

Despite the downgrade, Australia’s metallurgical coal exports will still be 3.2% higher than the same period in 2022-23.

Australia left unchanged its export forecast of 174 million tonnes for 2024-25 as new coal mines in New South Wales and Queensland are expected to ramp up output. However, the upcoming La Niña climate phenomenon could cause volatility in the market – it usually reduces the likelihood of droughts and promotes colder winters, but also leads to higher water availability in hydroelectric power plants.

Australian authorities, despite optimistic export forecasts, expect metallurgical coal prices to fall as supply disruptions ease. In 2024, the average price is expected to be $277 per ton versus $298 in 2023. By 2029, the price will drop to $185. Lower spot coal prices “could potentially impact the outlook for new projects, although key projects such as Olive Downs and Maxwell are expected to continue to accelerate in the near term,” the ministry said.

The decline in metallurgical coal exports from Australia is unlikely to help Russian metallurgists, as it reflects weaker demand for coal in Asia, primarily in China, where the construction sector continues to slow down. Coking coal production in Russia remains stable for now. According to the Kuzbass Ministry of Coal, in January-February 2024 it increased by 9%, to 12 million tons, while thermal coal production, on the contrary, decreased by 4%.

The decline in prices for coking coal will primarily affect the revenue of Russian exporters, comments Maxim Khudalov, chief strategist of the investment company Vector X. The production of coking coals will not fall, since they can still be profitably supplied to Asian markets, unlike low-quality thermal coals, the supply of which through the ports of the European part of the Russian Federation now faces significant difficulties due to the high cost of transshipment, freight and the railway component. A fall in prices for coking coal, all other things being equal, will also mean a decrease in purchase prices on the domestic market, notes Maxim Khudalov, which can benefit metallurgists with incomplete integration into their own coal – NLMK and MMK.

Evgeniy Zainullin