Coal market recovery to start by end-2025 as supply starts to fall away: Australia's Yancoal

Coal miner Yancoal Australia's executives expect coal prices to start recovering by end-2025 as supply has started to respond to the depressed environment.

Yancoal's overall average realized coal price for the second quarter was $A142 per mt ($92/mt), down 10% from A$157/mt in the prior quarter and 22% lower than the year-ago period average of A$181/mt, according to its July 18 production report.

The low volatile pulverized coal injection FOB Australia price averaged $138/mt for the second quarter, down from $164/mt a year prior, and the semi-soft FOB Australia price averaged $104/mt, down from $152/mt, according to Yancoal. The API 5 index averaged $68/mt, down from $89/mt, while the globalCOAL NEWC index averaged $100/mt, down from $136/mt from the year-ago period.

Despite these observations, "we are beginning to see supply side respond to the lower coal prices, which aligns with our view that coal indices are well below marginal cost on the global cost curve," Yancoal executive general manager of marketing Mark Salem told a July 18 analyst call.

"We anticipate further supply-side reductions from higher-cost producers, contributing to a potential recovery in coal price indices as was the case with past coal price cycles."

"Some supply coming off stream in small ways. There's a lot of sentiment in the marketplace at the moment that we're basically at the bottom of the cycle, and we should start to see some recovery," Executive General Manager of Operations David Bennett said.

However, it will "take still some ... so probably we will not see something significant until the very end of this year on the back of hopefully strong winter buying," Bennett said.

S&P Global Energy analysts have lowered the September-quarter price forecast for premium low-volatile hard coking coal FOB Australia to $172/mt and its CFR China forecast to $154/mt, according to a June 30 Metallurgical Coal Commodity Briefing Plus report.

The Platts-assessed Low Vol PCI FOB Australia price was $137/mt on July 17, down from $198/mt a year prior. The Platts-assessed Premium Low Vol HCC FOB Australia price was $172/mt on July 17, down from $232/t a year earlier. Platts is part of Energy.

The Australian steam coal average FOB Newcastle price was $105.86/mt on July 17, down from $143.33/mt a year prior, according to S&P Global Market Intelligence data.

Massive weather impacts

Yancoal delivered its best first-half operational performance of the past five years, and expects to finish 2025 at the upper end of its attributable salable production guidance range of 35 million mt to 39 million mt given it is currently ahead of the midpoint, CFO Ning Su told the call.

This is despite a temporary weather-related closure at the port of Newcastle, which "massively impacted both the revenue and the cash generation" recorded in the second quarter, Su said. Yet its mines operated to plan as its prior investment in pumping and water storage capacity continued to enable mining to return to full production rates quickly after heavy rainfall.

Thus, total second-quarter attributable run-of-mine coal production rose 17% year over year to 12.7 million mt, with attributable salable coal output up 15% to 9.4 million mt.

The wet weather and subsequent flooding of the Hunter River system still impacted rail and port activity, so the mine sites and logistics teams managed production and transportation issues so as to avoid operations becoming stockbound due to restricted ship movements at the port of Newcastle, Bennett said.

However, "in excess of about 1.4 million mt slipped off Yancoal sales" for the second quarter, so "we fully expect to deliver the delayed shipments throughout the current quarter," Salem said.