LAUNCESTON, AUSTRALIA – It’s tempting to mould events to suit your view of how the world should be, and there seems to be plenty of that in the coal debate.
There is certainly enough evidence to suggest seaborne coal volumes are trending lower, but it’s probably a mistake to use the sector as a proxy for the total market.
Environmentalists are keen to see coal as a sunset fuel that should be phased out as soon as possible given its role as a major contributor to climate change.
They have been heartened by recent news of the closure of a small coal mine in Australia and the decision by the city council of Australia’s Newcastle, home to the world’s biggest coal export harbour, to divest from the fuel.
Falling imports by China and India, the two largest buyers of the dirty fuel, have also been cited as further evidence that coal is on the way out.
In contrast, BHP Billiton, the world’s biggest miner, said in its results presentation last week that it remained positive about coal, especially the “robust” long-term outlook for coking coal – used to make steel – as the fuel is likely to become scarce.
While coal miners have struggled to make profits in recent years after the massive expansions in capacity undertaken earlier this decade led to a collapse in prices, there appears no shortage of buyers for quality assets.
Rio Tinto’s Australian coal mines may be up for sale, and bidders may include Glencore and cashed-up newcomer X2 Resources, according to recent media reports.
Clearly the view that coal is on its last legs can’t be reconciled with a bullish outlook for the industry’s long-term health, and it’s probably the case that environmentalists and coal industry executives are talking past each other.
So, what is the true state of the coal sector?
There are some facts that probably all can accept, namely that both thermal and coking coal are currently oversupplied, which is largely to blame for the fuel being worth only about one-third of what it was 4-1/2 years ago.
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