COLUMN-Metallurgical coal is set to rise from the doldrums as green steel ambition fades: Russell

By Clyde Russell

JIMBARAN, Indonesia, Sept 24 (Reuters) - An industry that is shutting down some production as prices hover around four-year lows and higher taxes bite doesn't sound like it should be particularly bullish.

But metallurgical coal producers have reason for medium- to long-term optimism as supply remains constrained and ambition fades to transition steel-making to low-emission production.

Australia dominates the seaborne market for metallurgical coal, the high-energy grade used mainly to make steel, with a share of exports of 154 million metric tons in 2024, or 52% of the global total, according to data from commodity analysts Kpler.

This is three times the exports of the next biggest, the United States, which shipped 51.5 million tons, followed by Russia with 38.4 million and Canada with 28.0 million.

Metallurgical coal prices have trended weaker this year amid a combination of ample supply from these producers and softening steel production in 2025, which dropped 1.9% in the first seven months of the year compared to the same period last year, according to data from the World Steel Association.

Benchmark futures on the Singapore Exchange SCAFc1 dropped to a four-year low of $173.50 a ton on March 24, and have traded mostly sideways since then, ending at $188.25 on Tuesday.

BHP Group BHP.AX, the world's biggest metallurgical coal producer along with its partner in its Australian mines Mitsubishi, said on September 17 it would suspend production at its Saraji South mine in Queensland state.

BHP said while medium-term demand for its metallurgical coal was strong, it was no longer profitable to mine the lower-margin parts of the complex.

BHP CEO Mike Henry also criticised the Queensland state government for its decision to raise royalties in July 2022 to 20% for coal priced above A$175 ($117) a ton, with a top tier of 40% for prices over A$300. Previously, the top tier was a 15% royalty on prices over A$150 a ton.

While Henry would no doubt be keen to deflect the blame for the mine closure onto government taxes, the decline in prices carries a far larger share of the blame.

The question for metallurgical coal is why should the outlook be optimistic if conditions are currently dire enough to warrant closing down mines?

The answer is that while 2025 is proving a soft year for steel production, it is expected to increase in coming years, especially as developing countries in Asia build their economies and raise urbanisation rates.

INDIA RISING

India is expected to double its steel output to more than 300 million tons in the next 10 years, while countries like Vietnam are also planning to build more capacity.

While India is a major coal producer, it largely mines thermal coal and therefore imports most of its metallurgical coal.

The South Asian nation is also largely building basic oxygen furnace (BOF) steel plants, which require metallurgical coal, rather than electric arc furnaces, which replace most of the coal with electricity.

India currently has 20 million tons of BOF plants under construction and another 179 million in planning, but only 5.7 million of electric arc being built and 20.4 million in planning, according to data from the Global Energy Monitor.

This means that metallurgical coal demand is expected to rise rapidly in India, and also in other Asian countries that lack domestic sources of supply.

The supply outlook for metallurgical coal is also limited, with only a handful of new mines planned and others reaching the end of planned production.

Only three new metallurgical coal mines are confirmed for start up before 2030, Chris Urzaa, the general manager of marketing and logistics at Pembroke Resources, told the CT Asia conference, the world's biggest coal event formerly known as Coaltrans Asia being held this week in the Indonesian island of Bali.

One of those projects is privately-held Pembroke's Olive Downs mine in Australia's Queensland, while there is another in Queensland and one in the United States, Urzaa said.

It's possible that other mines will be developed in Russia, but it is becoming clearer that if the planned steel plants are built that there will be insufficient metallurgical coal to meet demand.

It also appears that the move to green steel production has lost momentum, with companies scaling back ambitions in the face of the high cost of building the green hydrogen plants that are needed to reduce iron ore to direct reduced iron without using coal.

While green steel may yet gain momentum, the continued construction of BOF steel-making plants in Asia suggests that metallurgical coal will remain a key part of the process for decades to come.

With new supply unlikely to replace end-of-life retirements this makes it likely that prices for metallurgical coal will be biased higher over the longer term, and will need to sustain at levels strong enough to incentivise new capacity additions.

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The views expressed here are those of the author, a columnist for Reuters.