Met coal discounts spur Australian switch to thermal
Australian producers of hard coking coal and pulverised coal injection (PCI) grades are joining semi-soft coking coal mining firms in switching to thermal coal output, taking advantage of the extraordinary price premium for the power generation fuel.
Hard coking and PCI coal prices fob Australia from the start of June slipped below that of high-grade thermal coal fob Newcastle. This extremely unusual met coal discount to thermal has continued to widen on weaker demand for met coal and scarcity of non-Russian thermal coal, with thermal coal now priced at around double that of premium hard coking coal.
Premium hard coking coal has historically often been double the price of high-grade thermal coal, offsetting the higher cost of mining and washing the metallurgical coal. Even at price parity mining firms will often receive a bigger margin for selling unwashed coal as thermal rather than carrying out processing to make coking coal.
This can be seen in the lower grade New South Wales (NSW) semi-soft market, where producers have a history of increasing and paring back sales to reflect changing premiums compared with thermal coal. These producers are largely also major exporters of thermal coal and are more opportunistic in their approach to semi-soft sales than the mostly metallurgical coal producers in Queensland.
Australian producer Whitehaven, which produces both types of coal, said last month that NSW coal mining firms have been switched out of semi soft and into thermal coal for many months, except where their contractual obligations and customer relationships with semi-soft consumers make it too difficult. The same dynamics are taking hold in the hard coking and PCI markets out of Queensland.
Contractual obligations, customer relationships and practical problems around mine planning and logistics mean that the supply side response in Queensland is slow and patchy. But with over two months of price impetus to switch to thermal coal, some higher grade met coal producers are prepared to make the change, particularly the newer producers with fewer historical ties to coking coal customers. This has the potential to add thermal coal into the seaborne market, which could offset some of that lost because of flooding and workforce shortages at traditional thermal coal mines.
Wet effect
Australia during January-June shipped 92mn t of thermal coal and 80mn t of metallurgical coal. While all exports of coal have fallen compared to the same period in 2021 because of the weather, thermal coal exports fell by 2pc and metallurgical coal exports were down by 6pc, according to Australian Bureau of Statistics data. This is despite the wet weather being more disruptive in the thermal coal regions of NSW than in the metallurgical coal regions of Queensland. It is probably driven mostly by lower sales of semi-soft rather than hard coking coal, with premiums for high-grade metallurgical coals remaining wide during January-May.
This export gap could have widened into July and August on the emerging discount of all metallurgical coal, although the severe flooding that disrupted deliveries of coal to the mostly thermal coal port of Newcastle in July may skew exports for that month.
![](https://public-assets.argusmedia.com/2022/08/18/australianexportcoalpricecomparisons18082022045221.jpg)
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