January 2022
During 2021, the global coal industry not only recovered from the effects of the Covid-19 pandemic, but proved that despite the worldwide negative outlook, coal burnt hotter than ever. Steel mills around the world ramped up and coal trade flows adjusted to accommodate China’s import ban on Australian metallurgical coal.

With China’s ban continuing throughout the year, Australian coking coal was fully redirected to other markets, such as India, paving the way for US producers to increase their share of imports into China.

In January, metallurgical coal prices rose across the board. For the month, the Premium HCC FOB Australia averaged US$117/t, up from US$101/t the month prior but down from US$147/t in the previous corresponding period. China’s ban on Australian imports continued distorting the global metallurgical coal market, with the highest CFR China prices attracting additional spot supply from the US, Canada and Russia.

In mid-2021, average metallurgical prices climbed across the board due to increased demand from mills and supply tightness in China. Lower supply from Mongolia and mining operation suspensions ahead the 100th Anniversary of the Chinese Communist Party resulted in higher imports from Chinese steel companies. Consequently, seasonal demand from steelmakers in the Asia-Pacific region and large purchases by Indian traders supported the sharp rise in Australian prices.

In July, planned maintenance of some Australian mines and European producers chasing spot cargoes contributed to the drastic surge in metallurgical coal prices. Low Mongolian coal exports to China hit their third consecutive month, which favoured Russian coking coal sales in the export market. However, steel companies in the Asia-Pacific region required larger imports during the month, contributing to a continuous rise in Australian coal prices.

The exceptional surge in metallurgical coal prices continued until October. The restriction of steel production in China amid NDRC announcements helped to halt the uncontrollable rise of China’s domestic metallurgical coal prices. While the country still struggled to procure enough coking coal from its non-Australian suppliers, prices started to fall. China’s domestic prices ended the month at US$614/t for premium low vol, with an average of US$611/t. Likewise, Mid Vol HCC ended the month at US$539/t, with an average of US$537/t.

New developments emerged in the coking coal industry after supply suffered amid heavy rains and closures in key producing Chinese provinces in October. In November, coal mines gradually resuming operations and increased numbers of Mongolian coking coal trucks making their way to China supported supply recovery. As a result, the unstoppable increase in coking coal indices saw a drastic reversal, with prices dropping sharply in the third week of the month. The premium HCC FOB Australia price averaged US$369/t, down from US$399/t the month prior. Similarly, the standard HCC price fell to US$302/t from US$334/t in the previous month; LVPCI averaged US$235/t, down from US$272/t; and semi-soft dropped to US$215/t from US$269/t.

Overall, the premium HCC spot price has averaged around US$225/t in 2021, a sharp increase of 81.5% year on year. The spot price for LVPCI and SSCC averaged US$164/t and US$156/t, increasing by 109.2% and 125%, respectively, year on year. With the severity of Australia’s wet season likely to be a key factor impacting supply volumes in key producing regions, AME expects prices to remain elevated into the beginning of 2022.

Imports and Exports

To fill the gap resulting from the ban imposed by China on Australian coal in October 2020, China had to diversify its coking coal supply and boost domestic production. During the March quarter of 2021, China imported a total of 3.2Mt of coking coal from North America, of which 2Mt was imported from Canada and 1.2Mt from the US, increasing from 1.5Mt (up 25% year on year) and from 238kt (up 404% year on year), respectively.

Japan's coking coal imports fell in the March quarter to 15.9Mt, down 6.5% year on year, as the Japanese economy slowed amid fresh Covid-19 emergency measures, which had a particularly strong impact on the manufacturing sector. The country’s second state of emergency adversely affected domestic crude steel production, resulting in lower metallurgical coal demand. Shipments from Australia increased to 8.4Mt during the period, an increase of 12% year on year.

The Indian government’s restriction of the use of liquid oxygen to primarily medical purposes affected the country’s steel output in April. Similarly, restrictions on the movement of people to control the outbreak and the low availability of labour contributed to the month’s decline. The country’s monthly steel production drastically increased year on year, but dropped about 21% from March, to 8.3Mt.

US and Canadian coal mining companies were the biggest winners from the deteriorating relations between Australia and China. US operators boosted production in the second quarter of 2021 in response to strong demand from Chinese mills. Coking coal shipped from the US east coast port of Hampton Roads surged sharply, reaching its highest level since March 2020, as a result of a drastic increase in Chinese steel consumption.

Amid the resurgence of Covid-19 cases in Mongolia, Chinese authorities restricted truck transportation to Ceke, the transhipment station where metallurgical coal produced at important mines such as Ovoot Tolgoi is shipped by rail to customers in China. Restrictions on the second-largest coal trade checkpoint along the China-Mongolia border inevitably resulted in the Mongolian miner SouthGobi reducing coal production and severely impacted Mongolian coal exports. This closure strongly affected the metallurgical coal supply market, pushing Chinese steelmakers to find new trade flows. With China monopolising non-Australian supply, traders in the Asia-Pacific region turned to Australia as their main coking coal provider.

Sharp increases in global steel prices supported high demand for metallurgical coal. US operations kept exporting coking coal to China at record levels as major North American producers reported the biggest shipments from the US East Coast to China in the past decade. However, later in the year, the restriction of steel production by Chinese metallurgical companies and the decline in industrial activity in China halted the rapid rise of metallurgical coal demand from China. Strong demand from India balanced the decline in trading activity by other Asian steelmakers and strengthened the demand for Australian coking coal. AME forecasts the global supply of metallurgical coal to the international market will increase significantly, rising by around 17.4% to 397Mt in 2022.

Closures and Production Cuts

SouthGobi’s metallurgical coal business in Mongolia decreased 77.6% in the June quarter, down by 0.38Mt compared to the sales volume reported in the previous year. The sharp drop resulted from the restrictions imposed by the Chinese government to prevent the spread of Covid-19, which limited coal transportation by truck to Ceke.

Consequently, SouthGobi temporarily suspended operations at the Ovoot Tolgoi coal mine to manage the drastic decline in exports. The company did not register production of metallurgical coal at Ovoot Tolgoi from April to June. Sales volume by coal type was 0.08Mt of premium semi-soft coking coal, down from 0.21Mt in the year-earlier period, and 0.03Mt of standard semi-soft coking coal, down from 0.26Mt.

Major metallurgical coal company Coronado Global Resources revised its production forecast downward for 2021, decreasing the expected range of production of saleable coal to 17-17.2Mt. This represents a significant reduction from the previous range of 18-19Mt. Currently, Coronado runs its metallurgical coal business in the US and Australia, with its flagship Curragh coal mine located in the latter. Curragh is a Queensland coal mine well known for its unique capability to produce around 12Mtpa of hard coking, semi-soft, and PCI for export, as well as thermal coal for domestic sale, from a single open-cut complex.

However, from October to December, saleable coal production at Curragh dropped drastically due to an accident involving the death of a 54-year-old coal mine worker, which prompted the temporary suspension of operations at the mine. Moreover, severe storms and flooding since late November have impacted several mines at the Bowen Basin, where most of the metallurgical coal mines in the state of Queensland are located. These circumstances caused the suspension of the operation of the dragline at Curragh for a period of nearly three weeks, forcing Coronado to reduce its target for 2021.

New Mines, Restarts and Expansions

High prices in the metallurgical coal export market prompted the acquisition and greatly incentivised the restart of numerous coking coal mines, especially in Australia. In early June, underground mining restarted in Anglo American’s Moranbah North coal mine in Queensland, Australia. Mining operations were suspended in late February due to safety concerns following detection of a gas leak. Consequently, the company revised its 2021 met coal production guidance downward to 16Mt from the 20Mt initially reported. The mine produces, on average, up to 6Mtpa of medium-volatile hard coking coal. Resumption of operations at Moranbah North helped to ease some of the supply tightness of coking coal in the seaborne market.

US miner Arch Resources commenced production in 2021 at the Leer South mine in West Virginia, anticipating the production of up to 3.6Mtpa of High-Vol A metallurgical coal for the export market. The ramp-up of Leer South came at a crucial time, with the global economy recovering from the Covid-19 pandemic and steelmakers struggling with tight metallurgical coal supply. Arch’s metallurgical coal sales volume in 2021 is set at the range of 7.4-8.2Mt, with the company expecting to strengthen its position as the leading supplier of High-Vol A coking coal globally and increase its coking coal profit margins across a wide range of market conditions.

M Resources and Stanmore Resources’ joint venture, MetRes, produced its first metallurgical coal from the Mavis Downs pit in Central Queensland. The joint venture acquired the project from Peabody Energy in July 2021, holding a 100% interest in the project. The Millennium Mavis Downs metallurgical coal project intends to develop the Millennium coal mine, a 1.2Mtpa coking coal mine in the Bowen Basin in Queensland, Australia, and the Mavis Downs underground mining area as a single package. After commencing operations in the open-cut area, MetRes plans to relocate operations to the underground area in July 2022.

CST Canada Coal Limited decided to restart operations at the CST coal mine after suspending activities in May 2020. The mine is expected to produce an average of about 2Mtpa of metallurgical coal for a period of 16 years. Chinese CST Group holds an 88% stake in CST Coal, which holds a 100% interest in the CST coal mine. The mine produces premium LV coking coal for the Asian export market, with a focus on Japan. The CST coal mine will be the only mine operating in the province of Alberta, as Teck Resources has closed Cardinal River. The restart of the CST coal mine therefore means the resumption of the metallurgical coal export industry in the province.

Allegiance Coal Limited announced the restart of operations at the New Elk coal mine, a metallurgical coal mine located in Colorado in the US. The mine had previously been kept on care and maintenance since 14th July 2012. New Elk has produced an average of 849,000 tons of saleable coal annually during a period of approximately 24 years. The type of coal produced is low-sulphur high-volatile B hard coking coal, which will be blended with high-sulphur hard coking coals of Alabaman origin purchased from Mays Mining Inc. The blended product will be exported to the Asian region, with a focus on Japan.

Australian Fitzroy Resources has reportedly resumed operations at the Broadlea open-cut coal mine in the state of Queensland. The small-scale metallurgical coal mine in the Bowen Basin is wholly owned by Fitzroy Australia, which acquired the mine from Vale in 2016. Before the acquisition, previous owner Vale closed the mine in 2010 due to poor economics. However, Fitzroy decided to restart the mine in late 2017, sustaining operations for around 12 months.

Mergers and Acquisitions

Stanmore Resources announced it has executed a final agreement to acquire BHP’s 80% interest in the BHP Mitsui Coal joint venture (BMC). The deal includes US$1.1bn in cash on completion, US$100m in cash six months after completion and a potential payout of up to US$150m, linked to coal prices, in 2024. The agreement represents an enterprise value-to-EBITDA ratio of 6.9, excluding the potential price-linked payment. BMC operates the South Walker and Poitrel coal mines in Queensland, which produce 5-6Mtpa of low-vol PCI and 3-4Mtpa of semihard coking coal and PCI, respectively. Both mines produce mainly for the export market.

Stanmore entered into an agreement to conditionally acquire the Millennium and Mavis Downs Mines from Peabody Energy for an upfront cash consideration of A$1.25m (US$1m) and a royalty agreement capped at A$1.25m (US$1m). The company targeted the restart of mining operations from July 2021, pending completion of the acquisition. In addition, Japan Bank for International Cooperation (JBIC) agreed to loan up to US$53m to support Sojitz’s coking coal project in Australia. The project name was not specified but it is likely be the developing Gregory Crinum mine located near Emerald in Central Queensland.

Australian mining company Bowen Coking Coal Limited (BCB) exercised a call option to take over a 100% interest in the Bluff metallurgical coal mine in Queensland. The company announced that the takeover from Australian mining contractor MACA Limited will involve a payment of A$5m (US$3.64m). Additionally, BCB will pay a royalty to MACA if the coal produced at Bluff exceeds US$120/t. BCB expects to see ROM production of 1.0-1.2Mtpa over 4-6 years to supply the global steel industry, with the mine having all the necessary permits to resume production without substantial capital expenditure.

Allegiance Coal took over US mining company Black Warrior Minerals in August 2021, acquiring the Black Warrior coal mine. Black Warrior is a small-scale open-cut coal mine which produces high-volatile A hard coking coal. Additionally, Australian Bowen Coking Coal Limited (BCB) is planning to enter the metallurgical coal export business in Queensland with the acquisition of a 90% interest in the Lenton Joint Venture. In August, BCB took over the majority interest in Lenton JV from New Hope Corporation Limited. Lenton JV holds 100% ownership in the Burton metallurgical coal mine and New Lenton mining area, including the coal handling and preparation plant with a 5.5Mtpa capacity and the train loading facilities.

Vale has announced the sale of its Moatize coal mine in Mozambique to Vulcan for US$270m. The recently signed binding agreement includes the Nacala Logistics Corridor (NLC). Under the deal, the Brazilian producer will receive US$80m at the moment of the sale and an additional US$190m from the existing business until closing. The transaction also includes a 10-year royalty agreement related to the mine's production and coal price conditions.

The completion of the transaction is subject to the satisfaction of customary conditions, including the approval of the Ministry of Mineral Resources and Energy of Mozambique. Moatize’s sale is part of Vale’s strategy to achieve carbon neutrality by 2050. In early 2021, the company announced its intention to no longer own coal assets, focusing on its core businesses and on its ambition to become a leader in low-carbon mining.