Norwich Park branch rail line connecting Pembroke Resources' Olive Downs coking coal project to the Dalrymple Bay Coal Terminal on the Goonyella rail system in Queensland, Australia. Source: Pembroke Resources

Coking coal executives have warned about conflated environmental perceptions between thermal and coking coal, as COVID-19 recovery stimulus measures are buoying Pembroke Resources Pty Ltd.'s confidence as it gears up for construction on its A$1 billion Olive Downs' project in central Queensland.

Private equity-backed Pembroke announced on Sept. 29 it had received mining leases, the last major approvals needed to start the 12- to 18-month mine construction phase for the 838 million-tonne JORC resource Olive Downs project, slated to start production at 4.5 million tonnes per year before eventually ramping up to 15 Mt/y over time.

This came the same day S&P Global Platts reported executives from Glencore Plc and Trafigura Group Pte. Ltd. telling the FT Commodities Global Summit that they would both make a "managed" exit from their coal businesses. Trafigura trades both types of coal and Glencore has assets of both types in Australia.

Main Norwich Park branch rail line near the future intersection of the Olive Downs project rail spur in Queensland, Australia. Source: Pembroke Resources

Asked about that report, Pembroke Chairman and CEO Barry Tudor told S&P Global Market Intelligence that while he would "always like to understand the details of various participants' strategies," he feels "very comfortable" with metallurgical coal because there is no substitute, and the steel it is used for is key to Asian markets' post-coronavirus recovery.

BHP Group, which announced in September its aim to cut operational greenhouse gas emissions by at least 30% relative to adjusted fiscal 2020 levels, also committed in August to sell its thermal coal mines within two years.

While BHP will also sell its lower-quality coking coal mines, CEO Mike Henry reiterated to retail shareholders in an Oct. 7 webinar that the company believes demand will "remain for quite a while yet, particularly for higher quality coking coal."

"As steel mills seek to decarbonize their processes, we believe they're going to need this higher-quality product," he said when asked about Chinese President Xi Jinping telling the United Nations General Assembly in New York in September that his country aims to be carbon neutral by 2060.

Confused perceptions

Tudor bemoaned the perception that "there's often no distinction between thermal and coking coal, but the only thing they have in common is they're both black," with two "totally different" uses, coal chemistries, customers and the way they are marketed.

Stanmore Coal Ltd. founding Managing Director Nick Jorss told Market Intelligence that "there is definitely a pushback against coal" and capital constraints exist as some funds have "taken an ESG view that they shouldn't invest in coal.

"A number of people take an ideological stance on coal and probably ignore the fact that without coking coal you don't have steel, without which you don't have any infrastructure, including wind farm turbines, solar panels and public transport," Jorss said.

"Not all, but many institutional funds are still very much interested in coking coal," Jorss said, adding that a subset of European funds that "did well" out of Stanmore are now on the register of Bowen Coking Coal Ltd., of which he is a director, and which is also in talks with Asian and Australian institutional funds.

He said coking coal's future looks bright with governments wanting to "spend up big" on infrastructure to stimulate economies to recover from COVID-19, "and with interest rates at virtually zero there's probably not too many levers they have left."

Bowen has submitted an environmental application for its Isaac River project along strike of BHP Billiton Mitsubishi Alliance Pty Ltd.'s Daunia mine in central Queensland. The submission included a progressive rehabilitation and closure plan, a new legislative framework with little precedence that came into effect on Nov. 1, 2019.

While Queensland coal operators have always been held to high standards, Jorss said the new legislation is not that practical as it requires set timelines for companies to finish mining and rehabilitate a pit, which "doesn't always practically work" for miners needing the flexibility to be able to respond to price changes.

Australian benefits

Pembroke and Bowen see particular growth in Japan, South Korea and India where their product is likely to go, and Tudor said Vietnam, Indonesia and Malaysia will also be needing more steel.

Platts Senior Managing Editor Paul Bartholomew said in an interview that there is "unlikely to be too much additional growth in import demand" from China given its government is trying to limit metallurgical coal imports, and Mongolia has also grown its sales to China.

Yet any drop in demand from China, Japan and South Korea will be "more than offset" by growing demand from India and Southeast Asia, he said.

Platts estimates that China alone plans to invest in around 40 Mt/y of new steel capacity in Southeast Asia in the next few years, all of which are blast furnace projects requiring coking coal and iron ore, he said.

India's National Steel Policy also still envisages lifting steel capacity to 300 Mt/y by 2031 from around 142 Mt/y currently, and "while it's unlikely to lift production by this amount, any new capacity growth will be largely underpinned by Australian coking coal," Bartholomew said.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.

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