Bulk Buys: CBA sees tough times ahead for thermal coal, as met coal M&A still steals the show
Commonwealth Bank has tipped the price of thermal coal to halve by the end of 2026, with local coal miners shifting their portfolios to met coal.
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Commonwealth Bank sees a steep decline in thermal coal prices coming by 2026, as local coal miners shift their portfolios to met coal to capture stronger tailwinds in the steelmaking commodity.
CBA mining analyst Vivek Dhar said low LNG futures prices, driven by strong storage levels and weak demand in Europe, would keep 6000kcal Newcastle thermal prices in the order of $US125-150/t through to the end of 2024.
But demand “plummets due to more economic and cleaner options in the power sector”, according to Dhar, with thermal coal to hit the low $US60s by the end of 2026.
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“We see downside risks to our thermal coal price outlook driven by the risk of oversupply in thermal coal markets over the next year. Our main concern is weaker thermal coal import demand from China and Europe,” Dhar said in a note.
“China’s thermal coal imports face downside risks from a reinstatement of import tariffs from the beginning of this year, high thermal coal stockpiles, ongoing headwinds from the property sector and expectations that normal weather conditions should boost hydropower.
“Europe’s thermal coal imports may surprise on the downside because of subdued economic growth and decarbonisation goals.”
The call comes despite a revival of coal supply to China in 2023.
The world’s second biggest economy ended a controversial and largely informal ban on importing Aussie coal in early 2023, mopping up 25 per cent of Australia’s exports (199Mt in total) last year.
Soaking up much of Australia’s lower grade 5500kcal supply, which competes with Chinese coal, the shift in dynamics saw Australia become the third largest supplier of imported coal to the Chinese market (24 per cent), behind Russia (36 per cent) and Indonesia (30 per cent).
China’s thermal coal imports rose 111 per cent in 2023 as coal use worldwide continued to peak, with thermal coal representing around 95 per cent of China’s thermal power output.
It came despite China supplying 95 per cent of its demand internally, with a drought causing hydropower to struggle in the June quarter.
“Thermal power generation rose by 6.1 per cent a year in 2023, with the year-on-year increase surging from April to June as drought in southern China weighed on hydropower. China’s coal production, which is mostly thermal coal, rose at a slower rate of 2.9 per cent a year in 2023,” Dhar said.
“With China supplying about 95 per cent of the thermal coal it consumes, the resulting gap between China’s thermal power generation growth and coal production growth helps explain the surge in China’s thermal coal imports last year.”
Dhar also thinks LNG supply will outpace demand.
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M&A lights up again in met coal
If coal tumbled into the $US60s by 2026, many local miners would be losing cash.
Front month futures for April were down $US3.15/t on Tuesday to $US133.35/t.
Futures markets don’t share Dhar’s pessimism.
Futures all the way out to 2029 are still priced at over $US130/t and the furthest dated futures with acting trading volumes – December 2025 – are priced at $US135.45/t.
Regardless, enthusiasm for met coal has clearly eclipsed that of the energy burning variety, with the sector one of the largest M&A markets in recent times.
There’s Glencore’s $US9 billion deal with Nippon Steel for Teck’s Elk Valley Resources, Whitehaven’s (ASX:WHC) $6.4 billion offer for BHP (ASX:BHP) and Mitsubishi’s Daunia and Blackwater mines, a rumoured sale to either India’s JSW Steel or Japan’s Nippon for a 20 per cent minority share in Blackwater by Whitehaven, Stanmore Resources’ (ASX:SMR) bargain barrel purchase of South32’s (ASX:S32) 50 per cent stake in the undeveloped Eagle Downs AND Stanmore backers Golden Energy and Resources and M Resources’ planned $US1.65 billion purchase of S32’s Illawarra met coal business.
Even further down the industry there are M&A shenanigans going on.
MC Mining (ASX:MCM) has been locked in a takeover tussle with a consortium of shareholders (named Goldway) controlling 64.3 per cent of the South African colliery owner since late last year.
It finally announced its rejection of the 16c per share offer on March 4, saying the bid represented a 20-30.4 per cent discount to a 20-23c range discussed with the raiding consortium in a non-binding proposal floated on September 5.
An independent board committee found the offer also failed to take into account a premium for control, with the 16c bid just 1.4 per cent above its six-month VWAP.
“The offer is opportunistic and appears to be timed to take advantage of the updated life of mine plan and improved production and coal reserves estimates for the shovel-ready Makhado steelmaking and hard coking coal project,” MC said in its target statement.
“Management have plans to implement on the operations and strategic objectives of the target to enhance the value of the Makhado Project asset in the mid to long term and as a consequence, the Independent Board Committee do not consider that the offer price provides a fair and adequate price for the target shares.”
Makhado is a new proposed steelmaking coking coal project with a mooted 28-year mine life.
The whole thing got even more exciting with the apparent delivery of a white knight to take on Goldway – Vulcan Resources, the Indian operator of Mozambique and Africa’s largest coking coal mine Moatize (sold by Vale earlier this year).
Mooted at between 17-20c a share, the offer never eventuated, with Vulcan revealed to have pulled out within a day. Fast times indeed.
An independent expert’s report, compiled by BDO, is due to be lodged in a supplementary target’s statement on March 18.
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Centaurus turns from nickel to iron ore
There was a time when iron ore juniors were desperate to make for the hills and plonk themselves in battery metals.
Now with nickel and lithium on the nose, the tide is swimming the other way.
Centaurus Metals (ASX:CTM) recently copped a hit from the market after announcing it would scale back its Jaguar nickel sulphide development to defer a planned nickel sulphate plant and focus further upstream due to low nickel prices.
Now it says it is investigating the possibility of producing DR quality iron ore pellets, suited for low emissions electric arc furnace steelmaking, from its Jambreiro deposit also in Brazil.
Jambreiro, which contains 43.3Mt at 29.1 per cent Fe and can be upgraded into an ore reserve of 17.9Mt at 65 per cent Fe with low silica and alumina impurities, was first acquired in 2010 and last studied in a PFS (pre-feasibility study) in 2019, which suggested it could underpin an 18-year operation.
Ore reserves were calculated on a mine gate iron ore price of around $US18/t, with pre-production capex of $59.8 million and total mine gate cash costs of $29/t.
At present, 65 per cent Fe iron ore is fetching $US135/t in China, with further premiums attached to DR grade product.
The 2019 PFS assumed 62 per cent Fe prices of $US75/t, with Singapore futures currently paying around $US108.90/t, down from more than $US140/t at the end of last year.
Centaurus said it had commissioned a new assessment for the project near Belo Horizonte due to interest in DR quality material from potential off-takers and customers.
“The strong push by steelmakers to lower greenhouse emissions has resulted in iron ore producers being encouraged to maximise grade and minimise impurities,” CTM said in a statement on Tuesday.
“With this in mind, Centaurus is now investigating the possibility of producing a DR quality pellet feed product from the Jambreiro ore, targeting a +68 per cent Fe product with combined grades of Silica (SiO2) and Alumina (Al2O3) being under 2 per cent.”
CTM said the assessment would not impact workflows for its Jaguar nickel sulphide DFS.
This content first appeared on stockhead.com.au
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Originally published as Bulk Buys: CBA sees tough times ahead for thermal coal, as met coal M&A still steals the show
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