May 2021
Australia’s thermal coal industry and the national economy are closely bound. Australia is the fifth-largest coal producer and has the fourth largest reserves of coal in the world. The nation is the world’s second-biggest thermal coal exporter.

In 2020, Australian thermal coal exports totalled 207Mt, worth close to US$16.1bn. Even with a value slump of 22.5%, as the COVID-19 pandemic hammered prices that year, that still makes it Australia’s second-largest export industry, behind only the US$78bn iron ore behemoth. AME forecasts a 7.7% rebound to 223Mt in 2021. Coal is the largest export earner in Queensland and NSW.

According to the Minerals Council of Australia (MCA), the Australian coal industry is also a ­significant employer in regional NSW, Queensland and Victoria. In 2020 the industry employed about 50,000 people directly, and a further 100,000 indirectly, despite the impact of COVID-19 restrictions, by applying strict protocols to protect workers and their communities.

Given its significant contribution to the economy, Australia has a large, vested interest in the health of the thermal coal market. Despite plenty of headwinds, the thermal coal sector is showing its potential to remain resilient well into the long term.


Global Slump Slams Demand

The pandemic’s effect on the global economy has been severe. It’s estimated that world gross domestic product (GDP) fell 11-12% in real terms between the December quarter 2019 and the June quarter 2020.  But the global economy has begun its recovery:  AME estimates a global growth contraction of −4.4% in 2020, and a 6% rebound in 2021, as the positive trajectory of the powerhouse economies, in particular the US, China and the UK looks set to continue.

The global slump slammed the demand for Australian thermal coal, as the pandemic-inspired economic slowdowns saw electricity demand slow dramatically through the first half of 2020, driving prices lower.

But as global economies start to recover from COVID-19, through 2021, the associated pick-up in coal-fired power generation is seeing the demand for thermal coal pick up, with a corresponding rise in prices.  In the medium-term, thermal coal is seen as coming under pressure as more countries pledge to achieve net-zero carbon-dioxide emissions by certain dates, and to meet their targets under the Paris agreement, by using more renewable energy — however, this picture is more nuanced than many appreciate.

In 2020, world thermal coal trade was severely pinched, declining for only the second time this century (the first being 2015): world thermal coal imports fall by 103Mt (or 9.7%), to 954Mt. World thermal exports dropped 99Mt (or 9.5%), to 945Mt.

This had to affect prices — and it did. In thermal coal, the price levels of 2018 — near $US120/t for Australian Newcastle 6,300 kcal/kg thermal coal — are a distant memory, with COVID-19 driving a contraction in the seaborne trade that has seen prices fall to their lowest levels in 5 years. But they have stabilised and AME forecasts prices to increase beyond 2021.  The AME Newcastle 6,300 kcal/kg price is forecast to average $US78.8/t in 2021, before slowly rising to $US81.0/t in 2022, and $US86.0/t in 2025.

Australia’s thermal coal exports declined to 213Mt in 2019 and to 207Mt in 2020, as Australian producers cut output in response to low prices. In value terms, thermal coal exports fall from $15bn in 2019 to $12bn in 2020, before a partial recovery to $13bn in 2021, driven by slow price gains and a strong recovery in volumes.

As global export trade picks up, coal prices are expected to rise — slowly, and tenaciously. AMEs coal price forecasts for Australia’s Newcastle 5,500 kcal/kg and Newcastle 6,300 kcal/kg benchmark thermal coals are higher in 2030 than in 2020.



Thermal coal prices are expected to rise in 2021, driven by an increase in seaborne thermal coal demand as the global economy recovers especially in South east Asia and strong economic stimulus measures come to play.

However, longer-term trends will constrain the extent of the rise: Europe and South Korea are looking to reduce thermal coal consumption, while the world’s two largest consumers (China and India) have signalled their intention to reduce thermal coal imports by increasing domestic production.


Australian Thermal Coal is Asia Centric

The seaborne trade out of Australia does not rely entirely on China, which results in a surprising outlook for Australian thermal coal.

AME see seaborne thermal coal demand in Asia rising by 2.5% a year for the period to 2030, and this may be conservative. This is based on the outlook for development in Asia, where most of the growth comes from, Asian economies are going to be growing much faster than 2.5% per year.

AME bases this on four main factors:

  • High electricity demand growth across developing Asia, driven by strong economic growth, increasing industrialisation and higher electrification rates;
  • High population growth across developing Asia;
  • Significant coal-fired electricity generation capacity commissioned in many countries in the region;
  • In some regions, domestic coal production is unable to keep up with demand, amplified by an increasing demand for high-quality thermal coal (high-energy, low-impurity), which is typical of seaborne-traded coal.

The developing regions of Asia — China, India, Thailand, Vietnam, Indonesia, the Philippines, Pakistan and Bangladesh — all have low levels of per capital electricity consumption.  The most developed of these — China — has a consumption level half of Japan’s and a third of the US.

India’s per capita consumption level is only one-tenth of Japan’s, and Bangladesh’s is less than one-twentieth of Japan’s. For all Asian nations to reach a Japanese level of consumption, massive investment in power generation capacity will be required.

While the time frame of development and growth will vary by country, demand for electricity generation in the Asian region is likely to be met by a range of sources, including thermal coal. AME sees the region’s seaborne imports growing by more than 89Mt to about 877Mt from 2021 to 2030 — considerably more than Australia’s entire 2021  forecast thermal coal exports of 223Mt.

Rising demand for Australian thermal coal means a lower emissions profile for Asia than if it were supplied with inferior local coal. This flies in the face of predictions of thermal coal’s demise as an electricity source — AME expect this is not the likely picture in Asia. 

Asian countries have growing populations, growing economies, and they don’t have cheap gas. They are very pragmatic, and while not ignoring renewables, Asia realises that thermal coal has a vital role in providing cheap, reliable base-load power for their fast-growing requirements. Above all, Asia needs to provide employment for their citizens so that they can put food on the table for their families.

Across Asia, the preferred electricity source being implemented is high-efficiency, low-emissions (HELE) coal-fired plants — for which Australian thermal coal is the ideal fuel.

Australian thermal coal is the benchmark coal in Asian import markets because it’s higher in energy, and therefore using it generates less carbon dioxide emissions per kilowatt-hour (kWh) of electricity than Indonesian coals. 

A modern HELE coal plant is the most efficient generator of coal-fired energy in the world, with the right coal. Japan, for example, will only use ultra-super critical HELE coal plants, which get close to 50% efficiency, or maybe even above. Japan are building around 15 of these plants, with more in the planning stages.  



Traditionally, Australia’s main thermal coal customers, such as Japan, Korea, and Taiwan, have paid a premium for the nation’s higher-quality product, and also for the security of supply, because those nations don’t have domestic fuel supplies. But the key consideration is that demand is widening. 

This is the absolutely crucial point to understand especially for thermal coal. China is getting quite voracious as well, as are the ASEAN markets such as Vietnam, Thailand and Malaysia, and other Asian markets like Pakistan and Bangladesh. For example, Vietnam is rapidly boosting imports by about 47Mt by 2030, which is four good-size thermal coal mines.

Currently, Australia’s share of the Asian export market is 20% — maintaining this alone means a healthy thermal coal industry.  There is a general consensus belief at the moment that Indonesian supply will tail off during the next 10 years.

Indonesia is the biggest supplier — they exported about 407Mt in 2020, AME forecast it to drop off to 390Mt this year, but Indonesia still dwarfs every other country in terms of tonnage. It is lower-quality coal, but the tonnages exported are high. 

However, like many other Asian countries, Indonesia has a large program of new coal-fired power being commissioned, so a lot of its thermal coal production will be diverted to the domestic market over the next 10 years. Australia, if it receives approval for new mines, could well increase its market share during the next decade, if it can get the supply side sorted out.


Rising Demand for Premium Quality Coal

Many would view Australia increasing its market share in global thermal coal exports as unfavourably, but the rising demand for Australian thermal coal means a lower carbon-dioxide emissions profile for the region than if it were wholly supplied with inferior (higher ash and sulphur content, and less calorific intensity) coal than the Australian product.

Combining our low-ash, low-sulphur, high-energy coal with the most technologically advanced, highest-efficiency and lowest-emitting power stations in operation is a win-win scenario. It reduces absolute coal consumption and reduces CO2 emissions, and the Asian nations know this very well.

Longer-term, even developments such as electric vehicles, greater renewable energy penetration and wider adoption of EAF technology in steelmaking may actually underwrite greater demand for thermal coal.

Where do people think the bulk of the energy will come from for electric vehicles? What powers the building, transportation and installation of renewable energy infrastructure? What powers EAFs? These are the hard questions that need to be examined thoroughly.