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THERMAL COAL: OUT OF FAVOUR, BUT NOT OF PROSPECTS
2 October 2020
Over coming years, MACH Energy plans to double production at its Mt Pleasant thermal-coal mine in New South Wales. (Thermal coal is used mainly in electricity production.)
This will make Mt Pleasant one of the largest thermal-coal mines in Australia, with annual production of 20
million tonnes. The corporate aim of MACH Energy (which is Indonesian owned) is “to help power the world’s growth.”
So far, 2020 has not been good for thermal coal. This reflects particularly a decline in demand from Asia, which consumes approximately 75% of the world’s thermal coal.
In addition, the Australian prime minister, Mr Scott Morrison, announced last month an energy policy that favours the use in Australia of gas over coal in the production of so-called “dispatchable” electricity (that, is,
electricity that can be produced on demand).
Thermal-coal use is expected to decline in importance in Australia in the 2020s.
But Asian imports are likely to increase, notably in Southeast Asia (e.g. Vietnam, Philippines, Thailand, Malaysia). In this context, short-term forecasts are given in the latest report of Resources and Energy Quarterly, published by the Office of the Chief Economist in Canberra.
According to the report, imports from Southeast Asia will increase from around 150 million tonnes in 2019 to 180 million tonnes in 2022.
The report also sees Pakistan and Bangladesh as growing (albeit currently small) markets.
These various countries will underpin forecast growth in thermal-coal imports by Asia of over 5% in the next two years.
Japan, South Korea and Taiwan take half of Australia’s thermal-coal exports. They will continue to be the most important market collectively for Australia, but probably not a growth market.
In recent years, China has taken 15-25% of Australis’s thermal-coal exports. The world’s largest producer, China typically controls imports according to the gap between international and domestic prices (e.g. it
increases imports when international prices are low, as in the first half of 2020).
India aims for self-sufficiency; in any case, Indonesia and South Africa dominate imports by that country.
Australia is well placed to meet growing import demand from Asia, because of its geographical position and
the high quality of its thermal coal.
Increasing competition may come from Russia, which is investing in rail and port infrastructure with the aim of servicing Asia better. Indonesia, the largest thermal-coal exporter, is constrained by growing domestic needs. South Africa, the US and Colombia (the other main exporters) are constrained by transport costs in servicing Asia and, in the US’ case, by limited port facilities for coal on its west coast.