August 2018: Australian coal exports reached $60.1 billion in 2017-18, the highest ever level and only just behind iron ore exports at $61.4 billion. According to figures from the Australian Bureau of Statistics, resources exports accounted for $220 billion of total exports of $400 billion that includes all goods and services (like education and tourism). On these numbers coal accounted for 27% of all resources exports, and 15% of all international trade by Australia with the world.
So it’s a very important industry and not on the way out as some would claim. It’s a far cry from the bleak years that followed the end of the Resources Boom in mid-2012, with the gloom continuing through to the middle of 2016. Lots of jobs were lost, with employment dropping from the mid-50,000s to under 40,000. But if the ABS employment data is to be believed (it does jump around a lot) it is back to the low 50,000s level.
With this level of export earnings, the coal companies are making very good money after some lean years. Earnings is not the same as profits, but industry figures on “cash margin per tonne” show that most companies have good profits per tonne.
However, it would be wrong to forecast endless growth. While the traditional biggest customer, Japan, has had to rely a bit more on Australian coal than expected after the shutdown of its nuclear power industry after the Fukushima disaster, it is seeking to limit that growth. The biggest coal producer and consumer in the world, China, appears to be pulling the strings in the global thermal coal market to maintain the market price at a level that doesn’t force Chinese producers out of business rapidly, but is still seeking to reduce coal consumption. That manipulated market price - about US$85 to $95 per tonne - suits Australian producers. But it is a highly vulnerable situation to be in.
Coal use is growing in certain smaller Asian markets like Vietnam, but is declining in many parts of the world. Australia has been growing its market share in an overall flat market, but that is not a situation that can continue indefinitely. Most forecasters export thermal coal prices and revenues to decline – they mainly differ about the pace. And although demand for metallurgical or coking coal for steelmaking has longer term prospects than thermal coal for power generation, it too is forecast to decline in price and revenue terms from current high – at least in part because of higher rates of steel recycling.
So the coal industry is making plenty of money right now, but we would be wrong to think another “supercycle” is happening.