Soaring coal prices have placed Australia’s mining and energy exports on track to reach a record $349 billion this year even as the value of the nation’s biggest export, iron ore, appears to have peaked.
Markets for thermal coal, used for power generation, are booming around the world as a global recovery from the economic impacts of the COVID-19 pandemic drives up demand for energy. Metallurgical coal used in steel-making has also touched new highs as supply shortages combine with rebounding industrial activity.
Federal government trade data to be released on Thursday reveals an expected 10 per cent rise in resources and energy earnings to hit an all-time high of $349 billion in 2021-22, before falling back to $299 billion in 2022-23.
“The sector has gone from strength to strength and is performing better than it was pre-pandemic,” Federal Resources Minister Keith Pitt said.
Coal producers were hit hard in 2020 as the shock of the pandemic pummelled prices and a diplomatic feud led to China banning Australian coal shipments. The sector has also been under mounting pressure as global warming concerns cause investors to flee, while the United Nations, ahead of an upcoming climate summit in Glasgow, is calling on all countries to commit to phasing out thermal coal between 2030-40.
Although this year’s price rally signifies coal’s enduring near-term demand as an abundant source of energy, the federal Industry Department notes the commodity faces “significant competing forces”.
“Recent revenue surges are likely to run up against longer-term structural issues in the coal market,” it said. ”Investor and policy pressure has grown in recent years, and the global coal-fired power plant construction pipeline has contracted since 2015.”
Still, the share prices of ASX-listed coal miners have been rallying in the past month. Investment bank Morgan Stanley described Whitehaven Coal, whose value has jumped almost 50 per cent since August, as a “cash machine” amid expectations of higher coal prices lasting well into 2022.
Prices for the key steel-making ingredient iron ore, however, have been falling rapidly. China, by far the world’s biggest consumer of the commodity, has been seeking to cut steel mills’ output and tackle carbon emissions for the third straight month.
After hitting a record $US230 a tonne in May, iron ore has had its value slashed in half and is now trading below $US110 a tonne, hammering the share prices of the mining giants BHP, Rio Tinto and Fortescue.
UBS analyst Myles Allsop said Chinese steel production had weakened since July as Beijing put pressure on provinces to materially cut energy consumption and intensity to meet targeted emissions cuts of 3 per cent year-on-year. Problems plaguing top Chinese property developer Evergrande had also triggered a slowdown in construction reducing steel demand, he said.
Australia’s iron ore exports reached a record $153 billion in 2021 on the back of an aggressive infrastructure building blitz in China and weaker iron ore output from mines in Brazil, but is forecast to fall by as much as 35 per cent by 2022-23.
Source: The Sydney Morning Herald