The Next Wave of Supply
May 2017
With global import demand forecast to increase 7.4% in 2017, producers of metallurgical coal are dusting off previously-shelved development and expansion plans to capitalise on favourable market conditions. These additions in export capacity are anticipated to total 80Mt over the next three years. Dominant exporter Australia is only anticipated to account for ~30% of these additions, with competitors Canada, Mongolia and Russia all vying to claim valuable market share.

The Permeations of Price Variation

  • AME forecasts over 32Mt of export metallurgical coal capacity will be added globally in 2017, an increase of 33% year on year from an estimated 24Mt added in 2016. This, in turn, was a 140% year on year increase from an estimated 10Mt additional capacity in 2015.

  • These strong yearly variations are closely related to changes in market conditions, with metallurgical coal prices following a similar trend over this period. The spot price for premium hard coking coal (HCC) FOB Australia averaged around US$87/t in 2015, the lowest since the establishment of a global coal spot market, before recovering to over US$140/t in 2016.
  • This recovery, reflected in a US$200/t HCC contract settlement in the December Quarter, encouraged producers to proceed with new developments or expansions that had been previously delayed. It also resulted in over 3Mt of idled production being restarted in 2016. 
  • The price recovery in 2016 has been sustained in 2017, with the premium HCC spot price FOB Australia averaging around US$190/t year to date. AME anticipates this to result in over 12Mt of new, 14Mt of expansion and over 6Mt of restarted export metallurgical coal production to enter the market.
  • With prices expected to ease in 2018 and 2019, AME forecasts export metallurgical coal capacity additions to drop to 28Mt and 23Mt, respectively.


Targeting Hard

  • Of the 32Mt of metallurgical coal capacity forecast to be added in 2017, AME expects around 61% or 20Mt to be HCC, with 29% semi-soft coking coal (SSCC) and 10% low-volatile PCI (LVPCI).
  • The dominance of HCC is largely due to the volumes demanded by steel manufacturers, who generally require approximately two-thirds of their coke blends to consist of HCC.
  • Producers of HCC also have the potential to achieve a significant price advantage over other metallurgical coal products, with spot prices averaging 37% above that of LVPCI and 48% above SSCC in 2016.
  • The higher price achieved by HCC is primarily due to its relative scarcity combined with its lack of substitutability in steel maker’s coke blends. While genuine LVPCI is less prevalent in coal reserves compared to HCC, it also isn’t required in as large a volume, and may be partially substituted by other coal types if required.     


It’s Not All About Australia

  • Accounting for over 50% of the internationally traded metallurgical coal market, it is perhaps no surprise Australia is expected to produce the most additional export capacity from 2017–2019, at over 26Mt. This is forecast to comprise 13Mt HCC, 8Mt SSCC and 5Mt LVPCI.
  • A point of interest, however, is that a comparable amount of export HCC capacity is anticipated to be added by Mongolia and Mozambique over the same period. The three countries largely operate in different markets, however, with Mongolia predominately held captive to China, Mozambique primarily targeting India and Europe, and Australia dominant in north Asia.
  • In direct competition with Australia, Canada is forecast to add over 10Mt of export metallurgical coal from 2017–2019 for sale into Asian markets. Russia is also expected to add over 9Mt of export metallurgical coal capacity over the period, for delivery into both Asia and Europe.
  • Once a dominant exporter of metallurgical coal, the US is forecast to add less than 3Mt of capacity from 2017–2019, after dropping over 50% since 2013.