Macro Intelligence: global coal decline expected by 2026

Article written by Nadine Blayney (ausbiz)

Coal consumption

While coal is a dirty word for some investors, the reality is coal is still the world’s largest energy source for electricity generation, steelmaking, and cement production.

Despite the UN’s COP28 climate summit declaring “the beginning of the end” for fossil fuels, it did not go so far as to mandate the end of coal-fired power plants; rather, it called for an accelerated phase-down of unabated coal power.

Despite still rising demand for coal in China, India, and other ASEAN countries, the IEA is forecasting China’s coal consumption will fall in 2024 before plateauing through 2026. Overall coal consumption is forecast to peak this decade. It is the first time the agency has predicted a drop in coal consumption over its forecast period. This prediction comes even in the absence of governments implementing stronger clean energy and climate policies.

Changes in coal consumption from 2021-2025

The Australian government says metallurgical coal markets stabilised over the June 2024 quarter as weather-related supply disruptions eased. It expects seaborne metallurgical coal import demand to hold steady in 2024 before experiencing modest increases from 2025 as increased Indian steel demand offsets China’s weak property sector.

Despite that, it’s forecasting Australia's combined thermal and metallurgical coal export earnings to fall to $70 billion by 2025/26 from $90 billion in 2023/24.

Forecasted prices out to 2024-25 for various metals and coal

Price point

Coal prices have been on a wild ride over the past few years. Thermal coal prices shot up in late 2021 when supply failed to meet an increase in demand as COVID restrictions were lifted. Coal prices then rallied to all-time highs after Russia’s invasion of Ukraine in 2022 as supply-side constraints and energy security concerns took centre stage.

Prices receded in 2023 and have continued to wane in 2024 on increasing supply and the gradual move away from coal as an energy source. The Australian government is expecting prices to decline from US$264 a tonne in 2024 to US$208 a tonne by 2026.

Coal prices over time for Australian and South African

Queensland’s coal crisis

Recently, two unexpected incidents in Queensland have impacted coal supply and price in the near term.

First, a major metallurgical coal rail line was halted after a collision. Morgan Stanley said it could reduce Queensland’s weekly shipments by around 24%, or an estimated 12% of global seaborne exports. Analysts expect the incident would tighten the market balance in the near term, which had been slacker given India’s elections and seasonally stronger supply.

Second, an underground fire forced Anglo-American to suspend production at its Grosvenor steelmaking coal mine in Queensland. There were no injuries, but the assessment of the damage and the reopening of the mine might take several months. It also might hinder Anglo’s plans to sell its coal assets, according to J.P. Morgan.

Established coal miners poised for gains

Global coal producers enjoyed strong margins as prices rose to peak in 2022, even as their costs also rose along with inflation. Mining companies used that period to pay back debts, increase dividends and buybacks, while retaining some cash.

The lack of new investment in coal mines will also prove to be a tailwind for established miners, according to Luke Laretive from Seneca Financial Solutions.

“There is a lot of good exposure that we really like in the coal sector,” he said. “Whether it is New Hope Corporation (NHC) or Stanmore Coal (SMR), these businesses are in a good position to benefit from consolidation in the sector and to reinvest in additional projects.”

New Hope Corp daily chart

Stanmore Coal daily chart

Whitehaven Coal to benefit from rising energy needs

“We’re very bullish on the sector,” Shawn Hickman from Market Matters recently told ausbiz. “You’ve got increasing energy demand brought on by AI, and that is going to help stocks like Whitehaven Coal (WHC).”

Whitehaven Coal daily chart

Morgan Stanley's bullish stance on Whitehaven Coal

Morgan Stanley analysts prefer “bulks over base” metals, saying Indian demand and supply tightness will drive metallurgical coal into the third quarter with the balance to tighten into the fourth quarter.

It is ‘overweight’ on Whitehaven Coal, saying it looks cheap on a 12-month forward EV/EBITDA of 3.8x compared to its global metallurgical coal peers. It flags a potential sell-down of Blackwater this calendar year, which could boost its cash flows and help it to deleverage significantly. Target price: $9.75.

WHC recommendations

Macquarie lifts thermal coal projections

Macquarie has an ‘overweight’ view on metallurgical coal but is ‘underweight’ on thermal coal. It has lifted its near and medium-term forecasts, particularly for thermal coal. Macquarie analysts say the outlook has shifted more positively across the coal spectrum.

Coronado Global Resources (CRN) is Macquarie’s pick of the coal miners, saying it has a relative valuation advantage to its peers as it has been the weakest performer despite continued strength in metallurgical coal prices. It bases its positive outlook for metallurgical coal on a slower recovery in Australian shipments, which is expected to keep the market tight despite a pick-up in Mongolian exports. It rates the stock ‘outperform’ with a $2.00 price target.

Coronado Global Resources daily chart

Macquarie targets $9.00 per share for Whitehaven Coal

Macquarie also has an ‘outperform’ rating on Whitehaven, with a price target of $9.00 per share, and has upgraded New Hope to ‘neutral’ with a $4.00 price target.

NHC recommendations